(This appears in today’s/ yesterday’s Deccan Chronicle)


Our markets are on another bull run. Do not search for reasons. This is the spirit of the market. It is sheer momentum that is carrying away things. Valuations have not changed, but perceptions. Perception of the future. A perception that the worst is behind us. When markets are in a ‘bull’ phase, investor behaviour is like a blindfolded horse. Nothing registers except a path that looks going higher and higher.


This is NOT a good time for the conservative investor. Everything seems to go ‘out of reach’ and still keep climibing. Even staying is not easy. In essense, we get too rational and try to look at things objectively and estimate ‘fair’ values for everything. This NEVER happens. Thank God for that. If it were, markets would be dull and boring.


One interesting thing I have noticed is that these kind of markets provide opportunities for speculative trading. Generally, these go by ‘sectors’. For instance, I have noticed that the last fortnight or so has been characterised by spectacular gains in prices of NBFCs. After the PSU Banks wrote off some bad loans, made some provisions etc, the analysts declared that the worst for the PSU Banks was over and there was a rally in their prices. “Forecasts” about normal monsoon, expectations of trade deficits getting narrowed, of FDI inflows continuing, growth rates of the economy being touted as the highest in the world etc are among the host of good things that are happening to India. Which means that our stocks are the most attractive and stock prices can only go North.


Every company is supposed to recover from its poor earnings growth and reach record earnings growth in the next few quarters.


Market valuations do not matter today. The Nifty is trading at close to 20 times forward earnings. Of course it has traded at 25 times also. Let me put up an assumption that earnings will grow at 20% every year. In which case, we are looking at something like this:


NIFTY                         year                EPS                             P/E


8250               now                 375                             22

8250               2016-17         450                             18

8250               2017-18         540                             15

8250               2018-19         648                             13


Now, does it look attractive? Your return on the NIFTY from today, depends on what the NIFTY will be at the point of exit. In 2018-19, the NIFTY should hit around 14250 for you to get a 20% annualised return. And of course the earnings growth should not miss twenty percent. Thus, when you are getting invested in to the market today, you have very little room for error. It is very likely that your prospective return on the index could be close to zero, from here, should the earnings growth be ten perecent instead of twenty perecent. And of course, if you are an NRI, investing in dollars, you have your currency loss as well.


I am not saying that we should sell everything and get out. There are times when it pays to keep away from the market. Wait out. Several things are possible in the market:

  1. Prices will NEVER come down from here, and keep hitting new highs;
  2. Prices will probably plateau out, fluctuate and move up slowly;
  • Prices will come crashing down ;
  1. Prices will shoot up and then crash ;
  2. Prices will go up a bit and stay in a zone for a long time.

The above are probabilities, not certainties. As an investor, we have to evaluate the options before us and bet on probabilities. So if you put in money in to stocks, there are at least five different outcomes that are possible. Your personal returns from this asset class will be a function of timing, market conditions and the size of the bet, the choices you make etc. There cannot be ONE general rule that is universal, when it comes to investing in equities. Equities are an inherently risky asset class.


Returns from equity is a function of time. The longer you stay in this asset class, the higher the probability of good returns, So if you are using a SIP route, the trick is to keep investing for as long as you can. And to exit, either use a SWP or exit when market multiples are high. Do not keep precise dates or times for exit. Market is very generous if you use logic to time your exits.


At times like these, I would not add surplus money to equities. I will let my SIPs go on. I will keep away from direct equities. I am sure that there will be better buying opportunities. I will use the time to make a list of companies I would like to own and a ‘fair’ price that I do not mind to own them. Then just wait it out.


It is important to get a ‘sense of where you are’. A 360 degree view helps. Or as they say, take a ‘helicopter’ view instead of a ‘tunnel’ view.



R Balakrishnan



4 thoughts on “A Pig market – How not to mistake a Pig for a Bull

  1. Oh…There are some commodity based equities trading cheap. what is your view?
    very difficult to time the exits though we feel many time market is very expensive.



  2. Thank you sir for sharing the knowledge.

    I did not understand how you are arrived at 14250? can you pls articulate?

    NIFTY may be high or fairly valued currently but when we are focused only on high quality low p/e companies and not nifty then we need not worry much about. right?


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