Topic: Sensex fundamentals. Posted: 28/Jun/2008 at 8:45pm
Posting below sensex level over the last 7 years. Decide for yourself whether post-2006, the PE and PB levels made much sense or were actually sustainable.
Year
Open
High
Low
Close
Price/
Earnings
Price/
Bookvalue
Dividend Yield
2000
5,209.54
6,150.69
3,491.55
3,972.12
24.48
3.81
1.14
2001
3,990.65
4,462.11
2,594.87
3,262.33
17.60
2.51
1.83
2002
3,262.01
3,758.27
2,828.48
3,377.28
15.22
2.30
2.14
2003
3,383.85
5,920.76
2,904.44
5,838.96
15.02
2.49
2.14
2004
5,872.48
6,617.15
4,227.50
6,602.69
17.26
3.28
2.01
2005
6,626.49
9,442.98
6,069.33
9,397.93
16.21
3.94
1.58
2006
9,422.49
14,035.30
8,799.01
13,786.91
20.18
4.75
1.35
2007
13,827.77
20,498.11
12,316.10
20,286.99
22.25
5.32
1.10
2008
20,325.27
21,206.77
13,731.54
13,802.22
21.40
5.27
1.01
Someone’s sitting in shade today because someone planted a tree long time ago.
Posting below sensex level over the last 7 years. Decide for yourself whether post-2006, the PE and PB levels made much sense or were actually sustainable.
Year
Open
High
Low
Close
Price/
Earnings
Price/
Bookvalue
Dividend Yield
2000
5,209.54
6,150.69
3,491.55
3,972.12
24.48
3.81
1.14
2001
3,990.65
4,462.11
2,594.87
3,262.33
17.60
2.51
1.83
2002
3,262.01
3,758.27
2,828.48
3,377.28
15.22
2.30
2.14
2003
3,383.85
5,920.76
2,904.44
5,838.96
15.02
2.49
2.14
2004
5,872.48
6,617.15
4,227.50
6,602.69
17.26
3.28
2.01
2005
6,626.49
9,442.98
6,069.33
9,397.93
16.21
3.94
1.58
2006
9,422.49
14,035.30
8,799.01
13,786.91
20.18
4.75
1.35
2007
13,827.77
20,498.11
12,316.10
20,286.99
22.25
5.32
1.10
2008
20,325.27
21,206.77
13,731.54
13,802.22
21.40
5.27
1.01
It shows clearly that sensex has not traded at less than 15 times its current year earnings for the last 7 years and probably in the earlier decade also.
So as I was mentioning earlier, Dec 2009 sensex earnings should be min 1120 odd and with this logic the sensex should be min 16500+
All this is arithmetic logic. Lets see how this logic works with emotional guys looking for activity.
Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
Posted: 28/Jun/2008 at 11:34am
Also as we go along the weight of services like telecom, banking, tech has increased and that means the the sensex Pe will have an upward bias.
Also the RoE of the sensex should be the determinent of Pe as should be the growth
RoE as defined by Eps by bv can be used to find out ideal price to book. Assuming a 8pc risk free a RoE of 24pc means that price to book could be 3times under ideal conditions. It appears that the sensex is cheaply valued through all these analytical parameters but investors are burdened with the unreasonable question of 'what if it gets cheaper from here?' If only we could define the bottom.!!!
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
Joined: 18/Nov/2007
Location: India
Online Status: Offline
Posts: 966
Posted: 29/Jun/2008 at 8:17pm
Originally posted by master
Posting below sensex level over the last 7 years. Decide for yourself whether post-2006, the PE and PB levels made much sense or were actually sustainable.
Year
Open
High
Low
Close
Price/
Earnings
Price/
Bookvalue
Dividend Yield
2000
5,209.54
6,150.69
3,491.55
3,972.12
24.48
3.81
1.14
2001
3,990.65
4,462.11
2,594.87
3,262.33
17.60
2.51
1.83
2002
3,262.01
3,758.27
2,828.48
3,377.28
15.22
2.30
2.14
2003
3,383.85
5,920.76
2,904.44
5,838.96
15.02
2.49
2.14
2004
5,872.48
6,617.15
4,227.50
6,602.69
17.26
3.28
2.01
2005
6,626.49
9,442.98
6,069.33
9,397.93
16.21
3.94
1.58
2006
9,422.49
14,035.30
8,799.01
13,786.91
20.18
4.75
1.35
2007
13,827.77
20,498.11
12,316.10
20,286.99
22.25
5.32
1.10
2008
20,325.27
21,206.77
13,731.54
13,802.22
21.40
5.27
1.01
Your P/E figures don't give the full picture because they take into a/c the sensex P/E on the LAST DAY of the respective years.
If you look at monthly figures then Sensex P/E was 10.27 in Oct-98, 11.51 in Dec-96 & 12.68 in Oct-02. Of course all these lows were followed by rallies, but the point is that the Sensex CAN go a lot lower than 15 P/E.
Rapid riser ji, figures are not for the last day of the year- they are adjusted for the year. For instance as on December 31, 2007, PE & PB were 27.67& 6.71 respectively whereas for the whole month of December 2007 they were 26.94 and 6.54 respectively. What we have on the thread for 2007 is 22.25 and 5.32 so it's not the monthly or year end position. Even if we drill down to a 84-month position one would still miss out on intra-month volatility. So in any long range trend, it won't significantly matter.
Coming to the moot point, the last 18 months are the ones which distort the valuation picture - the first 12 heating it & last 6 cooling little too much.
Basant ji has rightly pointed out it's the kind of companies coming in & exiting the index that influence the level. Take a look at the top 5 weights:
Reliance - 15.54%
Infy - 8.47%
ICICI- 7.80%
L&T- 6.98%
HDFC - 5.52%
None of them is a low PE or PSU kind of stock, so it's natural that it'll trade at relatively higher compared to historical levels of late 90s.
Someone’s sitting in shade today because someone planted a tree long time ago.
Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
Posted: 29/Jun/2008 at 11:23pm
Whenever we have hit 11 times on the Pe it has been orchestrated by an externel event Pokhran Blast, kargil, WTC 9/11 have been some key focus areas where this kind of price destruction has taken place - that is we have discounted the worst at that kind of a PE - historically.
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
Posted: 29/Jun/2008 at 7:13am
Yes, it is but what we aren't too far from the historical PEs either.
Edited by basant - 29/Jun/2008 at 7:15am
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
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