Sunday, October 19, 2008

Will history repeat - Part II ?

On May 22, 2008 I wrote an article about past Nifty levels with respect to its P/E (Will history repeat?). The fact is that I assumed that the bottom for the market would be reached in a span of 18 months but this correction came out to be much severe than anticipated. It has been only 10 months and the Nifty has reached a P/E of 13.15 on 19 October at a level of 3074.35, EPS being 233.79. If past is any indication and this quarter's earnings do not give much boost to Nifty EPS, than the bottom may come at around 2450-2535 at a P/E of 10.48/10.85. Past is just an indicator and history may be re-written, i.e. Nifty may go below P/E of 10 and reach 2000. Panic situation has started to appear on the faces of investors, brokers and analysts. People have started thanking God that they sold some stocks at 15-20K on Sensex. Everybody has started predicting new low levels for Sensex ranging from 7K to 8.5K. There is blood everywhere. I remember at this stage a statement made by Mr. Buffett in an interview with Forbes magazine in 1973 when Dow went to a P/E of 6-7. When asked how he feels right now, Buffett replied, "An oversexed guy in a whorehouse". Every value investor should feel the same right now in India.
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