Earnings Yield Suggesting Nifty still overvalued

The #Nifty currently sports a #P/E ratio (trailing) in excess of 20 (Data courtesy Sanjay Jaiswal at Market Pulse):



Invert this and you get an earnings yield of 5.0%, you can add about 1.2% for dividends bringing the total to 6.2%, the current risk free rate which is the return on 1 yr bonds is about 7.5%, so why bother investing in risky stocks to generate 6.2% when you can earn 7.5% in the bank risk free?

So despite the recent correction the market is still overvalued and will most likely fall further in the near term.

Earnings Yield Suggesting Nifty Overvalued http://t.co/6UAZyDoKWH pic.twitter.com/RYZlugF9Z5

— samuelR (@RajveerRawlin) September 4, 2015

Predictions for 2015

Dollar strength continues after a brief pause against all major currencies except the yen. With the Euro decisively breaking the long term support of 1.20.

Yen strength should result in a bout of carry trade liquidation that is a major negative for risk assets such as emerging market currencies and commodities.



Despite slowing growth in most emerging economies, policy makers have their hands tied and spend a whole lot of resources defending their weak currencies unsuccessfully with higher interest rates.


This in turn sparks a major exodus of FII money flows out of emerging economies like the BRIC countries which causes their stock markets to significantly under perform despite their terrific performance in 2014 and greedy analysts calls for more.



Volatility surges in 2015 as the Vix index doubles following a major take down of stock market indices across the globe.

Risk free assets will be among the safer bets in 2015 as risk appetites significantly wanes with treasury yields continuing to plummet with QE forever still continuing but without the desired outcomes.

BRIC Currency Crisis Bad for Indian Banking Stocks?

Weakness in the Indian #Rupee will most often translate into weakness for the Indian banking space as potential hawkishness forced on the #RBI in defense of the Rupee could hurt bank margins. The Rupee has weakened considerably since Russia raised interest rates to defend the slumping Ruble and more recently with China devaluing the Yuan.

Recent  topping action in the bank index could suggest a possible sell off in this space in anticipation of further Rupee weakness and potential hawkishness from the RBI. Just going back to August 2013 banks corrected over 30% when the Rupee fell to over 68 Rupees to the dollar and the RBI embarked on some serious tightening raising the overnight lending rate from 7% to 9%.

BRIC currency crisis bad for Indian banking stocks? http://t.co/SFzBN5BwiL pic.twitter.com/GvUnswEwGO

— samuelR (@RajveerRawlin) September 7, 2015