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Sensex at crucial juncture! Move above 21200 can lead to start of next BULL TREND!
The below is the English transcript of article by Ashish Kyal, CMT Director of Waves Strategy Advisors in Economic Times section of Navbharat Times.
Indian markets have been moving up amidst all the uncertainty that has come out over past 2 months.The strength we saw in Friday’s trading was led by Banking, IT, Realty and Financial sector. Rally has been observed across all sectors of the Indian Equity market but on a rotational basis. From positional trading perspective one needs to have long positions on basket of stocks to benefit from overall up move.
Sensex - Price to Earnings and Price to Book ratio suggests Indian markets are not expensive
Sensex PE ratio currently stands near 17 levels. This level is even below the 10 year monthly average of 18. We do not say this indicates that a bottom is near but it does provide a higher conviction that Indian markets are not expensive as many might be thinking. Sensex Price to Book ratio is astonishingly quoting at the level last seen in 2008 and prior to that in 2003. We have seen sharp rise in this ratio in 2009 as prices increase multifold after forming a very important low. This ratio has again approached near the same level of 2.5. From fundamental perspective, Price to Book ratio has arrived near 2003 levels and Price to Earnings ratio is also at the level of 2005. So by using these 2 simple parameters we are not seeing the current market as expensive for now but rather cheap on valuation.
Bank Nifty underperformance can continue…
In the rally since September onwards we can see that sectors like IT, Auto, Pharma has continued to outperform whereas Banking sector is still very much below its high made in May 2013. To understand this simple technique is to see Bank Nifty / Nifty ratio analysis. This ratio analysis suggests break of important support on downside which means Bank Nifty can continue itsunderperformance against Nifty for few more months. This does not mean Bank Nifty will give negative returns but means that other sectors or Nifty can continue its outperformance before Banking sector starts to catch up.
Sensex in terms of real money – GOLD suggests it is near very important support
Sensex in terms of INR does not represent how Indian markets have fared in terms of real money. Currency is printed by the country’s central bank, which might not necessarily represent the correct value. It therefore becomes necessary to see how stock market has been doing in terms of real money which is GOLD. Even when actual Sensex recently touched 3 year’s high but many stocks are trading at 52 week’s low. Sensex in Gold and not INR shows that prices are near 2009 low levels. However, Sensex in Gold has managed to protect 2009 low levels and prices have bounced back from there. This is also suggesting that major trend on upside should start very soon if not already started.
Week ahead: In short, the result season so far has been promising with Infosys followed by many other heavy weight companies beating street expectations. Indian currency also looks to be stabilizing near 60-62 levels. We think the positive sentiments should continue in this week as long as Sensex is able to protect 20400 levels on downside. Further move above 21200 will take Indian markets towards life time highs and will also be first sign of start of major BULL TREND!
For daily research on Equity, Commodity, Currency markets visit www.wavesstrategy.com
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Great post.
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