NIFTY OVERVALUED: Fundamental Approach.
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Is NIFTY' OVERVALUED? Fundamental View Based on P/E, P/B, Div'. Yld.
(A) Nifty' 50’s Price to Earnings (P/E)
Price-to-Earnings ratio (P/E) of the NIFTY' is
a simple market-valuation ratio.
A general guideline to help understand the valuation is:
P/E > 24 = Dangerously overvalued
P/E > 20 < 24 = Overvalued
P/E > 16 < 20 = Fairly valued
P/E > 12 < 16 = Undervalued
P/E < 12 = Highly undervalued
(mouthwatering valuations)
Current: 28.11 (MAX was 28.26 on 06 & 07th aug '18)
(B) Nifty' 50’s P/B (Price to Book value)
Price-to-Book value ratio (P/B) tells us how many times
an investor is ready to pay for a rupee of net assets.
Since book value is stable and less volatile than earnings,
some consider it better than the P/E as a measure of valuation.
If P/B > Median P/B = Overvalued
P/B < Median P/B = Undervalued
Current: NIFTY' 50's P/B: 3.74 > Median P/B: 3.4 (OVERVALUED)
(C) Nifty' 50’s Dividend Yield (Div'. Yld.)
Dividend Yield (Div'. Yld.) is nothing but the return
an investor gets in the form of dividend on his investment.
It is measured as dividend per share divided by price per share.
General Interpretation:
When stocks are cheap, dividend yields are high.
#1. Div'. Yld > Median dividend yield => Undervalued
#2. Div'. Yld < Median dividend yield => Overvalued
Current Scenario: 1.17, Median Div' Yld: 1.31
Fulfill Criteria #2. Hence Verdict: "OVERVALUED"
Historical Ref.: MAX - 2.24%, Min - 0.90%
Technical View:
Nifty'50 seems to have exhausted its momentum in the near term.
Time cycle suggests a sharp correction is overdue.
The upward channel is acting as a strong resistance and it seems that the market will respect the same.
The oscillators have turned distinctly negative (mentioned "MACD" in Chart), suggesting loss of momentum on the upside.
For Intra / Weekly levels refer "NIFTY: Week Ahead, Spot & FUT Levels Weekly(20/08/18) Basis"
If useful, don't forget to to Click in Like button.
(A) Nifty' 50’s Price to Earnings (P/E)
Price-to-Earnings ratio (P/E) of the NIFTY' is
a simple market-valuation ratio.
A general guideline to help understand the valuation is:
P/E > 24 = Dangerously overvalued
P/E > 20 < 24 = Overvalued
P/E > 16 < 20 = Fairly valued
P/E > 12 < 16 = Undervalued
P/E < 12 = Highly undervalued
(mouthwatering valuations)
Current: 28.11 (MAX was 28.26 on 06 & 07th aug '18)
(B) Nifty' 50’s P/B (Price to Book value)
Price-to-Book value ratio (P/B) tells us how many times
an investor is ready to pay for a rupee of net assets.
Since book value is stable and less volatile than earnings,
some consider it better than the P/E as a measure of valuation.
If P/B > Median P/B = Overvalued
P/B < Median P/B = Undervalued
Current: NIFTY' 50's P/B: 3.74 > Median P/B: 3.4 (OVERVALUED)
(C) Nifty' 50’s Dividend Yield (Div'. Yld.)
Dividend Yield (Div'. Yld.) is nothing but the return
an investor gets in the form of dividend on his investment.
It is measured as dividend per share divided by price per share.
General Interpretation:
When stocks are cheap, dividend yields are high.
#1. Div'. Yld > Median dividend yield => Undervalued
#2. Div'. Yld < Median dividend yield => Overvalued
Current Scenario: 1.17, Median Div' Yld: 1.31
Fulfill Criteria #2. Hence Verdict: "OVERVALUED"
Historical Ref.: MAX - 2.24%, Min - 0.90%
Technical View:
Nifty'50 seems to have exhausted its momentum in the near term.
Time cycle suggests a sharp correction is overdue.
The upward channel is acting as a strong resistance and it seems that the market will respect the same.
The oscillators have turned distinctly negative (mentioned "MACD" in Chart), suggesting loss of momentum on the upside.
For Intra / Weekly levels refer "NIFTY: Week Ahead, Spot & FUT Levels Weekly(20/08/18) Basis"
If useful, don't forget to to Click in Like button.
ノート
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