Prajna Capital - An Investment Guide

Take A Leaf Out Of Historical Happenings, There Are Returns To Be Made THE long-term trend is pointing towards under valuation of the Indian equity market. The market, as measured by Price-to-earning ratio ( PE ) of the Sensex has just about pierced the long-term trend line. At the current valuation, it is quoting at a one-year forward of 16, little less than the earnings growth rate that Sensex companies have managed since 1991. If the theory of market returns chasing earnings growth is to be believed, this is just about time for accumulation for those looking at the longer haul. Since 1991, while the Sensex has grown at CAGR of 15.5%, its earnings grew at a rapid 16.6% per annum. In the past two years, the market went up partially on the back of ‘ PE expansion’ . It meant PE of the Sensex was getting priced higher than usual, since the market expected faster growth in earnings. But with the current correction, while valuations have been ‘cleansed’ of such expectations, there are pro...

After stock market correction since Jan'08 there are many learnings for new/first time investors to protect their investment and minimize losses. How do you predict a fall in the markets? Tell-tale signs you need to look out for. The domestic Indian markets as well as global markets are going through a long-term bull run that started in the year 2003. We have seen many phases of rallies making new highs and consolidation thereafter in this long-term bull market. This phase of the market can be attributed to several factors including globalisation that resulted in work from abroad (outsourcing) and funds, opening up of the economy, and relative isolation of the domestic markets from the slowdown in developed markets. However, this phenomenal growth in the market has made it quite volatile. We see markets react very quickly and sharply to any news and events. Last few months were some of the most volatile months for the domestic/International markets. We have seen panic selling on t...