Nifty valuation Price to Earnings Ratio using technical analysis!

How to look at fundamental parameter like Price to Earnings Ratio (PE ratio) from technical analysis perspective?

Indian Equity Markets (Nifty) has continued to move in range from last few weeks. Markets were waiting for GST to pass out from many months which is finally cleared by Rajyasabha recently.

Many were expecting sharp rally post GST clearance however markets have been moving in range with important support intact on downside. Nifty is making new highs but not able to sustain the gains and reversing towards the short term pivot support levels. This is one of the examples that trading or investing based on news or events is dangerous and hence understanding market behavior applying various parameters is must. Below we have shown chart of Nifty and Price to Earnings ratio to see the valuations at current levels.  Apart from  this, we have also shown long term, medium term chart of Nifty with applied advanced concept of technical analysis which is shown in original report “The Financial Waves Monthly Update”.

Price to Earnings ratio chart

(Part of research taken from the monthly research report)

“Understanding the valuations: We take a step forward by looking at Price to Earnings ratio with a different perspective. In Figure 4 you can see comparison of Nifty with that of Price to Earnings chart. Nifty current PE stands close to 24. Previously, in March 2015 when Nifty touched all time high of 9119 the PE ratio was exactly at this level. Now when markets are at still lower levels from there the PE has already touched 2015 highs. This clearly suggests deterioration in the Earnings over the year. Also we would look at the overbought zone of the PE chart. The major tops formed in the year 2008, 2010, 2015 showed extreme PE readings and we have again approached at the same level.

We would refrain from using PE chart to call market tops as the irrational exuberance can last longer than anyone’s expectations. Nevertheless, this does provide perspective to the overall Elliott wave counts and pattern under development.” Detailed counts shown in actual research report.

The above is the part of research only. To know the pattern under formation on Nifty with advanced Elliott wave perspective, subscribe to “The Financial Waves Monthly Update” and for more information visit Pricing Page