On last 12 month numbers, Nifty valuation is as follows:
P/E = 21.59, E/P = 4.63%
P/B = 3.77
Div yield = 1.06%
10 yr G Sec yield = 7.38%
The earning gap between 10 yr and index is 2.75%. This means in a secured asset, 10 yr G Sec paper, the investor could get 2.75% more than equities. Clearly, the risk reward is not in favor of equities. So, equities could fall by 15 - 25% and investors may need to reduce allocation to equities.
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1 comment:
Nice way of putting it bansi.. and i recall marc faber quoting the same in another way... buy when p/e is around 8-10 (10-12.5% E/P) and sell when 20-22 (4-5% E/P). But how does one justify sensex at 21k last year? and adlabs at 1800+, not to mention educomp right now.guess madness has no bounds!
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