We had told in May that on a Trailing Twelve Months basis P/E Valuation of NIFTY or SENSEX, if it is 24 or above indicates signs of market over heating.
NIFTY at 8,800 has hit this TTM point of 24.
In Equity Markets, one should look at future earnings growth. Please also note this time FY16 profit margins touched decade lows. Looking at the overall economic developments, we believe that a reversion is in order. It's difficult to pinpoint the exact turnaround quarter and quantum, but it would be safe to assume a 15% CAGR (historical rate) over the long term from the current levels.
Considering all this, we are of the conclusion that NIFTY is not Cheap but not Overvalued like in the past. However, we are booking partial profits in Midcap / Smallcap counters as you never know what Global liquidity will do to Indian markets.
Consult your SEBI Registered Adviser before you act.
