Are Markets Overheated in the Small & Mid Cap Space ?

Are Markets Overheated ,especially in the Small Cap & Mid Cap Space?

Don’t take at face value all the bullishness you read online or in print  or see & hear on Stock Channels from Anchors & Experts

Bullish Headlines can provoke you to Buy impulsively especially if you get the feeling that you’re missing the Equity boat….remember there’s always another Boat you can catch

It’s your Money at Stake &  thus it’s wise to heed some indicators & be aware of  rising Valuation risks….exercise extra caution when going Top Down…Bottom Up of course always can be more rewarding,alpha too, if selections are fundamentally wise after assessing Value vs Price

NSE Indices levels currently are one quite strong Indicator of rising Valuation Risks even when considering that Corporate Earnings Growth in FY 17 is expected to be at least 15%

Take a Look  at some of these NSE Indices Closing Levels as on Friday,July 15,2016 & make your own judgement

Am not advocating Timing the Markets ~ just to be aware of rising price risks & headwinds & exercise some caution

 

Index Name Closing Index Value P/E P/B Div Yield
Nifty 50 8541.4 23.43 3.47 1.21
Nifty Next 50 21579.4 27.7 2.98 1.55
Nifty 100 8700.1 24.01 3.38 1.27
Nifty 200 4499.95 25.04 3.2 1.25
Nifty 500 7194.4 26.72 3.04 1.22
Nifty Midcap 50 3547.65 49.97 1.79 1.43
Nifty Free Float Midcap 100 14282.2 33.89 2.37 1.47
Nifty Alpha 50 8878.33 28.39 3.97 0.61
Nifty Quality 30 2177 28 7.17 1.46
Nifty Full Midcap 100 4347.53 41.08 2.13 1.11
Nifty Midcap 150 4688.28 36.28 2.52 1.05
Nifty Smallcap 50 3168.04 39.2 1.16 1.25
Nifty Full Smallcap 100 3062.72 32.76 1.35 1.1
Nifty Smallcap 250 4673.6 1530.54 1.56 0.99
Nifty MidSmallcap 400 4677 53.26 2.1 1.03

Pre Lunch Added Remarks on Monday ,July 18,2016

Just 15 minutes short of 1 pm & the Sensex & Nifty remain buoyant & are up 150+ & 35+ at near 28000 & 8580 levels respectively as Monsoon session of Parliament commences today….A Decent Monsoon after two years of drought appears to be priced in well for now….Its the hope of GST being passed in this session that clearly seems to be sustaining the buoyancy….If GST is passed in August the euphoria will elevate Index levels by at least another 5% ….Index Valuations are already high in anticipation & these should run up even more in August….Brexit panic’s come and gone for now….while it is acknowledged that GDP will indeed be favorably impacted with GST there clearly is the risk of Markets running even more ahead of fundamentals in the short term…On March 31,2015 last year I had appeared on ET Now Prime Time & warned on FY 16 & that Markets at the time were ahead of fundamentals with the Sensex having kissed 30000 on March 4 ,2015 & that a correction was imminent…Sensex rolled back sharply towards 23000 before the smart recovery again just now to 28000 levels….I sense a similar situation developing in August next month & short term caution would be wise…if you wish to make merry in any GST induced Rally from now to August,if it passed by all means do so…just leave the party before you’re forced to clean up….Oh! & there is a chance I could be wrong on this….so safer when in doubt to stay out in the short term …of course there’s also the risk in staying out in that scrips will not become cheaper as FPIs roll in more funds & cash as we all know is not productive 🙂

Just stay true to your risk profile & ensure your selections have fundamental triggers & a fair Value vs Price assessment …so even if they correct,they will recover to your your invested price in the not too long future

Cheers !

15 thoughts on “Are Markets Overheated in the Small & Mid Cap Space ?

    1. Cash never hurts though it’s not Productive 🙂 ….Long Term Investors,riding on their conviction, ride out the roughs & stay invested in their selections + patiently await value in fresh selections for infusing more funds….it’s the Traders & Speculators that need to exercise extra caution at these indicators

    1. Interesting question Hardik…can compare levels before 2005 to 2007 rally set in to current levels ….you can gather the data from the NSE website….however many indices were born post 2005…What I can tell you is that Nifty 50 in July 2005 was at 2200 levels at PE of 14.2,PBV of 3.8 & Div Yield of 1.64….In two years by July 2007 Nifty had near doubled to 4300 levels & then by December 2007 end & January 2008 beginning had galloped away to 6200 levels! where PE was 28,PBV was 6.5 & DY was 0.8…..then it began slipping in 2008 and post Lehman debacle in the same year crashed over 50% to below 3000 end October 2008 with PE at 11,PBV at 2.4 & DY at 2….surely you can arrive at some great inferences from all of this historic data…… Cheers

    1. Let me put it this way Nishant….I’m always looking for corrections…love them…as it lowers the price risk while enhancing gains in selections….and if GST gets delayed yet again beyond this Monsoon Session it should be a trigger for a correction…IT majors Infosys,Wipro & Mindtree have sounded caution with their lack lustre Q1 FY 17 performance….as usual as always EPS Projections for the FY ahead begin on the higher side and then get radically revised downward…Despite a better Monsoon this year there is a similar risk of EPS Projections being revised downward yet again.Translated into Nifty Valuations which are currently riding on PE of 23+ it would mean a slide down to 20/21 & the levels you are enquiring….I would like 18 though but that would mean a 20% correction which may not happen….while this may be rational thinking on my part,the markets can behave quite irrationally often in my view and may not correct at all !…having said this while I do view top down too my focus remains bottom up to spot potential winners that can not only beat benchmarks but compound gains brilliantly …Cheers

      1. I am confused from market cap /GDP indicator , which most of news papers and business channels are publishing now a days. This indicator is telling different story that currently market is trading below < 70% of GDP and it is below long term average of 80 odd percent. However I am firm from my side that if market comes in range of 7800 and below then I would start putting additional money in equity else continue with SIP.

        I am big fan of you and your blogs so requests you if you can start writing one blog every quarter related to market valuation, for tracking purois and sectorial analysis, where value and businesses are emerging. It would help us who are novice investor.

  1. Sir,
    Your views on IndiaBulls group IT raid. can we still buy IndiaBulls venture at CMP? Is it still bullish or IT raid will affect the group share price to go down?. Please share your views. Thankyou.

    1. Dear PSV,look at it this way…Like I’ve mentioned in the post that the Indiabulls Group has had past controversies which the market had been clearly disregarding in running it up in recent months….the genesis,as clear now, of such a run up inside months lies in the financial dynamics changing especially with the proposed sale of the Chennai Property which has now been approved in the EGM….Past Controversies could be viewed as Unsystematic or Business or Specific Risk in the IB Group…Now this Raid last week has created a new specific risk…the Income Tax authorities suspect undisclosed income & what will be the final outcome of the raid will hang in balance for now…your guess is as good as mine…while this clearly has affected counter sentiment & momentum for now,it’s the Valuations that will emerge with changing financial dynamics that would drive the price in the medium to long term…my post spells out quite a bit on this & its for the reader to take the call…what I can say though is this group’s companies may not appeal to many investor risk profiles…. Cheers

  2. Fantastic post. I was doing a similar PE analysis between bank nifty and nifty this weekend (also reading articles of David Stockman’s contra corner that sounded very cautious of valuations). It is one of the few occasions where bank nifty PE is well above nifty PE. Such high bank nifty PE (close to 26) was last found only in 2008 (before crash). Only if the NPA problem gets solved in short term such valuation justifies. However it doesnt seems the case given the results reported so far. Am I missing something or not understanding valuations?

    Note: Not buying stocks now. Waiting for valuations to be reasonable. Willing to miss the ride even if market moves to all to all time high due to liquidity or sentiments.

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