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State of Indian Stock Markets – June 2016

This is the monthly update of the state of Indian stock markets. As of now, it comprises only of an analysis of Nifty50‘s ratios, namely P/E, P/BV ratios and Dividend Yield.

But before that, lets see what happened in June 2016, which was a month of exits.

RBI Governor Raghuram Rajan said No to a second term and instead, has decided to return to academia (lucky him!) after his term ends in September. Read his address to RBI staff here.

People termed it as Rexit (= Rajan + Exit). I am a fan of Mr. Rajan for his sensible views and how he took a tough approach towards cleanup of PSU banks. Personally I think that having him around with the current PM in driver’s seat, would have been great for the economy. But life moves on and so will the Indian economy.


Then people of Britain decided to do a Brexit (= Britain + Exit) from the European Union (EU).

In short term, Indian markets were expected to react negatively to the news of Rexit. But that did not happen. Tells how brutal the markets can be towards people’s expectations. 🙂 As for the Brexit, there was a knee-jerk reaction when indices fell more than 2% in a day (might look like a big drop in short term but is nothing when long-term is considered). Some stocks whose business is dependent on British and European economy, witnessed far deeper one-day cuts. But markets seem to have recovered since then. Experts are still trying to predict the consequences of Brexit. But no on seems to be sure about the actual impact. Whether it will result in a mild recession in UK or whether government will eventually disregard people’s verdict in referendum and stay back in EU – no one knows anything.

Coming back to the state of our own markets…

The numbers are averages of P/E, P/BV and Dividend Yield in each month. The heat maps don’t show the maximum and minimum values of each month.

Caution – Please remember that relying solely on averages can be risky. Its like a 6-feet person drowning in a river which had an average depth of 4-feet. 🙂

Don’t make any investment decisions based solely on just one or two ‘average’ indicators. At most, treat these heat maps as broad indicators of market sentiments.

So here are the Heat Maps…


P/E (Monthly Average)
Price to Earnings Nifty June 2016

P/E Ratio (on last day of June 2016): 22.75
P/E Ratio (on last day of May 2016): 22.60


P/BV (Monthly Average)
Price to Book Nifty June 2016
P/BV Ratio (on last day of June 2016): 3.37
P/BV Ratio (on last day of May 2016): 3.40

Dividend Yield (Monthly Average)
Dividend Yield Nifty June 2016
Dividend Yield (last day of June 2016): 1.25%
Dividend Yield (last day of May 2016): 1.32%


You can read about last month’s update hereThe State of Markets section has also been updated (link).

For detailed analysis of the relation between investments made at various P/E, P/BV and Dividend Yield levels and the historical returns, please have a look at these 3 posts:


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State of Indian Stock Markets – May 2016

This is the monthly update of the state of Indian stock markets. As of now, it comprises only of Nifty50’s P/E, P/BV ratios and Dividend Yield.

The numbers are averages of P/E, P/BV and Dividend Yield in each month. The maps don’t show the maximum and minimum values of each month.

Caution – Please remember that relying solely on averages can be risky. Its like a 6-feet person drowning in a river which had an average depth of 4-feet. 🙂

So do not make any investment decision based solely on just one or two ‘average’ indicators. At most, treat these heat maps as broad indicators of market sentiments.

So here are the Heat Maps…


P/E (Monthly Average)
Nifty PE May 2016


P/E Ratio (on last day of May 2016): 22.60
P/E Ratio (on last day of April 2016): 21.24


P/BV (Monthly Average)
Nifty PB May 2016

P/BV Ratio (on last day of May 2016): 3.40
P/BV Ratio (on last day of April 2016): 3.27

Dividend Yield (Monthly Average)
Nifty Dividend Yield May 2016

Dividend Yield (last day of May 2016): 1.32%
Dividend Yield (last day of April 2016): 1.37%


You can read about last month’s update hereThe State of Markets section has also been updated (link).

For detailed analysis of the relation between investments made at various P/E, P/BV and Dividend Yield levels and the historical returns, I suggest you have a look at these 3 posts:
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State of Indian Stock Markets – April 2016

I regularly update the State of Markets section (link) on Stable Investor. This time when I updated it, I took a step further and decided to try and publish heat maps for 3 popular ratios (P/E, P/BV, Dividend Yield) of Nifty 50, on monthly basis.

The numbers are averages of P/E, P/BV and Dividend Yield in each month. The maps don’t show the maximum and minimum ratios of each month.

As with any such ‘average’ indicators, its worth saying that you should not make any investment decision, based solely on just one or two indicators. At most, these heat maps should be treated as broad indicators of market sentiments.

So here are the Heat Maps…



P/E (Monthly Average)


Nifty Historical PE Ratio
P/E Ratio (on last day of April 2016): 21.24


P/BV (Monthly Average)


Nifty Historical PBV Ratio
P/BV Ratio (on last day of April 2016): 3.27%


Dividend Yield (Monthly Average)

Nifty Historical Dividend Yield
Dividend Yield (last day of April 2016): 1.37%

For detailed analysis of what have been the historical returns for investments made at various P/E, P/BV or Dividend Yield levels, I suggest you have a look at these 3 posts:
I am planning to see whether I can also bring in data for some other mid-cap / small-cap indices from next month. Do share your feedback and help me improve these monthly State of Indian Stock Market posts.
 

P/BV Ratio Analysis of Nifty in 2015 (Since last 16+ Years)

In continuation of the last post about P/E Ratio Analysis of Nifty since 1999, here is a similar analysis of Price–to-Book-Value Ratio. Like PE Ratio, I have been regularly tracking this 2ndindicator to gauge overall market sentiments at the State of Indian Markets on a monthly basis.

The data once again has been sourced from NSE’s website (link 1 and link 2) and starting from 1st January 1999. Ratio related data prior to this period is not available. So here is the result of the analysis…


The table above clearly shows that if one is investing in markets where P/BV < 3.0, returns over the next 3, 5 and 7 year periods have been in excess of 20%… i.e. 26.3%, 26.9% and 21.4% to be precise. On the other hand if investment is made when index P/BV exceeds 4.5, the returns have been quite unacceptable at 3.3% and 5.7% for 3 and 5 year periods.

Like we saw in previous post, this clearly indicates that when investments are made at high P/B levels, chances of sub-par (and even negative) returns increase substantially.

For your information, currently Nifty is trading at P/B Ratio of 3.8

But here is another interesting thing which can be observed. Even at a costly PB>4.5, if an investor stays invested for more than 7 years, then average returns are still a very decent 9.6%. And this shows that longer you stay invested, higher are the chances of making money in stock markets….even if you have entered at higher levels (Caution: I am talking about index investing here and not individual stocks).

Below are three graphs to provide details of the exact Returns against the exact P/B on a daily basis (though arranged with increasing PB numbers).

The left axis shows the P/B levels (BLUE Line) and the right axis shows the Returns (in %) in the relevant period (Light Red Bars)





All three graphs clearly show that there is an inversecorrelation between P/B Ratio and returns earned by the average investor. Higher the P/B Ratio when you invest, lower the expected rate of return going forward.

After P/E Ratio Analysis and this post on P/B Ratio Analysis, next I will be sharing my findings on a similar analysis for Dividend Yield of Nifty for last 16 years.