Tuesday, February 07, 2006

What were you doing when it hit 10000?

That was the question my friend asked me yesterday. If you have been following the Stock Market, you would know what it meant. Sensex, the BSE Index hit 10,000 yesterday. Other than it being a magic figure, it doesn't have much significance. Because, even at this level the P/E ratio of the Sensex is around 21.9 which is far lower than what it was during Harshad Mehta scams (40) or KP scams (100).

There are a few Sensex stocks that trade at cheap P/Es - SBI at Rs.870.00 (P/E of 10), NTPC at Rs. 119.00 (P/E of 16), Hindalco at Rs. 170.00 (P/E of 15) - but most of the Sensex stocks are trading at very high P/Es. My view is that the real growth will happen in second line stocks.

BSE Replica

Sensex from 1000 to 10000

7 comments:

Anonymous said...

Chen,

Don't u agree that this is an indicator of overall investor confidence?

and,

is that right to compare the P/E ratio of companies in diffrent industry ?

Anonymous said...

Chen,

is this not a time to rejoice...'coz anyways the P/E is not too high and that the bubble will not burst?

Anonymous said...

I read a reaction in News Paper.

A old broker who has been in action for 30 years told he never thought he will live to see this..

how interesting !!!

Bala said...

Chen,

P/E ratios have to be compared with the similar securities like SBI with a bank and NTPC with another power corporation. Similarly Sensex PE should be compared with Nikkei's, Hang seng's or Kospi's (these hover in between 10 and 14 and nowhere near sensex's or nifty's)

The only thing that is keeping the market up and above is liquidity and once that dries up...

Chenthil said...

I didn't make it clear. When I said SBI is cheap it was in comparison with ICICI (P/E 24) and similarly NTPC is cheap when compared with Reliance Energy (P/E 20) and Tata Power (18).

The sensex raise is due to liquidity in the market from FIIs. They are the market makers unlike earlier when it was Indian FIs like LIC/UTI etc.

I don't think it is a bubble, but from now on growth will be in B gr stocks since I feel Sensex is fully valued. Ofcourse I am not be the first fool to predict the market :-)

And one more thing - this is not a controversial post, so why do you people remain anonymous :-)

smiley said...

What goes up should come down? Very interesing.

Bala said...

a word of caution ;-),

I would suggest that you review FII daily buying and selling figures from december (available in SEBI website) alongside daily market movement. What you find might surprise you.. (trust me, you will find whether they are "market movers" or not)..

Also, During The current leg of the rally (after bloody october), midcap and small cap stocks have lagged and many have not breached their september high levels. This is usually a sign of last leg of bull market and not a continuing one.