September 28, 2005

Am I too pessimistic about the market

I have been asking this question time and again to myself . Am I being too pessimistic ? I have some statistic below which I calculate to see how the over all market is looking like in terms of valuation and fundamentals ( extending back to 1991)

Return on capital, earnings growth seems to be at an all time high. The earnings have more or less doubled in the last 2 years. As a result the valuation do not seem to be stretched. The market is definitely not as richly valued as 2000 or 1992-93. At the same time the earnings growth , return on capital and interest rates are much lower than what we had at that point of time.

At the same time, will it get any better going forward. Can the Return on capital improve further, interest rates fall further and earnings growth improve further ? My thought is that the odds are low ….

But does it mean that one needs to sell or the market is ready for a crash ?? again I don’t think that is likely. I have not been able to come to a definitive conclusion and hence have chosen to do nothing ( not buying and not selling ).

Maybe another 10% increase in the market in the next couple of months could change my mind


sundar said...

hi (I dont know your name),
I have also been trying to apply the lessons from WB and BG and Dodd to indian markets with some success for the past one year. so i am relatively a newbie. i saw the post today and was wondering from where did you get the data presented in the excel format. would you be kind enough to share this data. are you collecting this yourself or do you get it from some source ?

Rohit said...

i have been using the basic data available on the nse-india website such as the P/B, Div yield and the PE values. The rest of the data i am calculating on my own. I will post the complete excel soon on my blog