Pragna Securities: October 2018

Saturday 6 October 2018

XAUUSD :; Will keep $1219 as stop and short term target $1108

NIFTY

Congestion zone : 9685
Nifty FIB 0.618 : 9516
Nifty PE study(20.5): 9485

NIFTY : Congestion Zone study: First line of defence - 10100 ; Second Line of Defence: 9685

On 28th Aug 2018, Nifty 50 hit ATH of 11760 and the NSE website shows NIFTY PE: 28.72 the prior day 27th Aug and on that day 28th Aug it is 28.66. It worked out to =11760/28.72= 409.50 as EPS of Nifty.

FY-19 forward EPS if we take it 13% growth, 409.50 will become 462.70

The standard market sentiment of PE of 20.50 x 462.70 = 9485 Nifty value.

This corresponds to my 61.8 correction at 9485-9515.

Will patiently wait for 9500.

Courtesy: Kirubakaran Rajendran, Stock Market Trader,Founder - www.squareoff.in

NSE NIfty PE Chart (P/E Ratio) for last 10 years

I have read an post about Nifty PE sometime back in a forum, let me share it here.Below is the Nifty P/E chart for the last 10 years.This is a very important chart for both technical and fundamental analysts. It gives an indication of when to Buy and When to Sell Nifty. Very useful for long term equity investors to time entry and exit in equity markets. P/E chart gives indication of when valuations are cheap and when valuations are peaking. This in-turn gives valuable insight on when to Buy and when to Sell.

You should not judge a stock by its P/E alone, but the Nifty index P/E alone is a pretty conclusive data. Checkout below for proof of that.

Lets analyse the above graph for more insight. All time low of Nifty P/E is 10.68 in 2008 during recession. Belows the Nifty P/E lows or support levels in the last 10 years. These are excellent levels to buy.

Nifty P/E below 13 is a big BUY any-day.

All time high of Nifty P/E is 28.47 in 2000. Belows the Nifty P/E peaks or resistance levels in the last 10 years. These are best levels to SELL. Nifty P/E above 24 is a big SELL any-day.

Current Nifty PE Ratio on 11-Nov-2016 is 22.02

Nifty PE ratio measures the average PE ratio of the Nifty 50 companies covered by the Nifty Index. PE ratio is also known as "price multiple" or "earnings multiple". If P/E is 15, it means Nifty is 15 times its earnings. Nifty is considered to be in oversold range when Nifty PE value is below 14 and it's considered to be in overvalued range when Nifty PE is near or above 22. The market quickly bounces back from the oversold region because intelligent investors start buying stocks looking to snatch up bargains and they do the exact opposite when Nifty P/E is in the overbought region.

Recent research done by my firm shows just how dangerous it is to remain invested in an expensive market. Since NSE started, every time when Nifty's Price/Earnings ratio exceeded 22, the average return from Indian equities over the subsequent three years became negative.