Money Matters

Morningstar had published statistical analysis to predict the sensex returns for 2 years based on overall sensex PE (Price to Earning) ratio. http://www.morningstar.in/posts/36274/how-investors-can-use-the-pe-ratio.aspx The results are interesting and give us fair idea where sensex might be headed in coming 2 years. For example if Sensex PE is in range 16-17 the model predicts 26% return over two years and  actual returns have been 28%. As of Feb 2017, the Sensex is sitting on PE of 21.96 and according to model it predicts 1 percent returns over next two years, not a good sign indeed.  It would interesting to visit the post in two years time, to validate the prediction. The  historical Sensex PE can be obtained from BSE website http://www.bseindia.com/markets/keystatics/Keystat_index.aspx?expandable=2 But having said that if you are investing through SIP with long term view , it should not bother you. For those who invest in individual stocks, its good ide...

Mid-cap stocks are having good run on exchange since the General Election of 2014. The overall valuation can be judged by analyzing  the P/E graph for  NIFTY Free Float Midcap 100 since it was created, The P/E value for  NIFTY Free Float Midcap is hovering around 32 as of today, which is highest till date since the inception of this index. Even during  market crashes of 2006 and 2008 the PE was well below current value at around 26. The median value for PE for index  is 16.83 and mean is 17.6. Reversion to mean is well known phenomenon our mid cap stocks are showing no signs of retreat as of now, only time will tell. From behavioral aspect I can see more retail investors flocking to mid and small cap Mutual funds as the rate of interest on FD is declining. The index movement taken form  edelweiss  shows the following pattern. Note that the PE values and price values move in similar pattern from February 2014 own wards, which means p...