An Important Notice and Market Pulse

I have been diagnosed as suffering from Falciparum Malaria, caused by Plasmodium falciparum - the deadliest parasite in humans, causing a conservative estimate of one million deaths every year. The doctors of Bombay's reputed King Edward Memorial Hospital or KEM Hospital prescribed me R-Nate Forte (Artemether & Lumefantrine) and a series of other drugs and tests. Since, I am seriously ill, I will take leave  from Facebook for sometime. However, I will update the free Finance Blog from time to time.

Now coming to the share market, I feel the  market is ready to go down further as the implementation of GST without a proper framework is likely to create more disruptions, especially in the SME sector, hitting the rural economy badly; which provides the basic labour force for such space. The whole economy has been rattled by the twin miseries. The large corporate  players like L&T  are delaying salaries, while the SMEs are cutting jobs.

According to an article on the Economic Times, Indian stocks were the third-worst performers among leading emerging markets in September as foreign portfolio investors pulled money out of the country at the fastest pace since November last year amid a slide in the rupee. Market participants said foreigners shifted money from the expensively valued domestic shares to cheaper destinations on worries that corporate earnings growth will take time to revive. 

Abhay Laijawala, head of research at Deutsche Equities India said in an interview in ET: "FII (foreign institutional investor) outflows will continue. Generally, they are pulling out money from EMs (emerging markets) in response to normalisation of policy by the Fed and in expectation that ECB (European Central Bank) could also look at tapering when it meets in October".  Foreign investors have sold Indian shares for the second month in a row in September.

The current state of the market is far worse to the one in calendar 2003 in terms of economic fundamentals, but surprisingly we are way too high in terms of valuations.

The S&P BSE Sensex rose more than six times from the low of 2,904.44 hit in 2003 to hit high of 21,000 in 2008 and now we are at 31,283.72, more than 10.77 times. 

PE Ratio of Sensex is one of the most basic & fundamental thing that is seen by investors while investing in equities. Sensex PE Ratio can tell you the valuation of the market (overvalued, undervalued or rightly valued). 

In earlier days, the alarming bells would start to ring if the P/E of Nifty hovered above 15, but then many experts post NDA government came to power thought New normal for Sensex PE could be 19.

But we don't have the optimism we had in 2003, as it will take time for the economy to recover from the twin shocks of Demonetization and implementation of GST in a very amateurish manner. I also doubt whether the GST will be too beneficial for the long term, inspite of the NDA government's loud rhetoric of "Acche Din".

The Nifty50 was trading at a PE of around 14 times back in 2003. Now the Sensex is trading at a P/E of 23.41 and Nifty at 25.44 much higher than even the latest "New Normal" as is decided by some of the most optimist experts.

Therefore, with RBI probably keeping the rates steady in the next meet and not much hopes of corporate earning improving, I don't think the Indian markets will move up too high from here; at least till this Deepawali. In fact after the RBI policy announcement, there is high chance that a crash of the market might take place.

In such a situation, I would suggest the traders to sell on rise and refrain from taking fresh LONG positions, unless the government of India comes up with some Stimulus packages. But then a stimulus package has the propensity of creating stubborn inflation.

The moot point is: the NDA Government has messed up everything in the Indian economy and has made it sick and infirm. It is therefore time that a good doctor cures the diseases inflicted upon the Indian economy  by the current dispensation in Delhi. The Nifty may test 7905 once again. However, individual stocks could perform in their own capacity.