Wednesday, August 10, 2016

What bull market, Eh !!

This post is inspired by a lot of noise which is being generated in the investment community over the last one year. Now there are two sides to everything and even now we have one faction of the stock markets who are sounding out caution and ringing alarm bells pointing out the fact that broad market indices are trading at high valuations (Nifty 50 PE: 23.44 & Nifty 500 PE: 26.97) as on 10th August 2016. While there seems to be many advising caution there seems to be this other side which is saying that earnings are on the cusp of growth and hence the P/E which looks expensive on a trailing basis will look cheaper as earnings come out.
To dwell more on this the second group (bull case) made this similar argument last year when markets topped out around March as earnings growth didn't come of and thus tanked the markets. Now, this group again makes the same case. Considering the fact that they turned out wrong once if earnings don't turn up markets wont take it lightly, though i am not suggesting anything, it's just an observation.
However, the purpose of my post was not to make a bull or bear argument. I don't follow indexes or P/E levels hence i am ignorant to these vagaries. The basket of companies i venture in are completely unrelated to indices, ignoring minor similarities in the case of one or two companies. What really caught my attention was some people suggesting the fact that this is a bull market, crap companies are shooting through the roof, there is no sanity, people are not evaluating what they are buying.
This caught my eye because as a regular follower of markets i know that this fact is horribly wrong. Hence, i chose to present my fact with some statistical evidence with the following exercises (This is just a start of a long exercise, I will be doing lot more studies on the similar subject so expect a lot more to come in the following days)

Selected Sensex (Period YTD (year to date) as on 9th August 2016)
  1. Compiled returns data for all 30 companies
  2. Out of 30 companies 8 companies have shown negative YTD returns with the worst being CIPLA at a negative 18.64%
  3. Out of 30 companies 10 have delivered single digit YTD returns with the best being TCS at 9.70 percent while the worst was Coal India at 0.9 percent
  4. So out of a total of 30 companies 18 companies have delivered returns which are not reminiscent of any bull market
  5. Of the 12 companies delivering double digit returns the best is Tata Steel with YTD returns of 45.92 percent while NTPC comes last registering gains of 10.66 percent
  6. All the companies are trading below their 52 week highs with 16 companies trading within a 5 percent band to their all time highs


Selected BSE 500 (Period YTD as on 9th August 2016)
  1. Compiled returns data for all 500 companies
  2. Out of 500 companies 210 companies have shown negative YTD returns with the worst being LYCOS Internet with a negative return of 67.23%
  3. Out of 500 companies 96 have delivered single digit YTD returns with the best being EClerx at 9.85 percent while the worst was Lakshmi Machine Works at 0.09 percent
  4. So out of a total of 500 companies 306 companies have delivered returns which are not reminiscent of any bull market
  5. Of the 194 companies delivering double digit returns the best is Manappuram FInance with YTD returns of 196 percent while Oberoi Realty comes last registering gains of 10.15 percent
  6. All the companies are trading below their 52 week highs with 127 companies trading within a 5 percent band to their all time highs, while 164 companies are trading 20% or greater below their 52 week highs

    I don't know what bull market others have been talking about but what I could infer from the data is that
    1. Market seems to be judging companies based on their performance
    2. With more than 40 percent companies posting negative returns on a YTD basis the argument that crap seems to being bought and junk is getting value is absolutely wrong
    3. What seems to be happening is that junk is getting perfectly valued and the universe of companies posting good results and with good corporate governance track record getting smaller day by day the usual set of companies are getting bid up higher. (Effecient market)
    4. If this was a bull market what market are companies like LYCOS, INOX WIND, AMTEK AUTO witnessing. The shareholders in these companies have seen just bearishness. If I add the JP's & Unitechs and like the list would get endless. 
    5. If even after such judgement and more than 2/3rds of the invest able universe delivering negative returns I wish the much talked about bull market arrives for these companies (for the sake of the poor shareholders)
    Note: If investing was as easy as buying when P/E is 14 and sleeping when P/E is 24 well then people are just reading too many books. 

Karan Sharma 

3 comments:

  1. Well said : If investing was as easy as buying when P/E is 14 and sleeping when P/E is 24 well then people are just reading too many books.

    ReplyDelete
  2. Well said : If investing was as easy as buying when P/E is 14 and sleeping when P/E is 24 well then people are just reading too many books.

    ReplyDelete
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