NIFTY EPS vs Price (update)

This is a continuation of the chart I had prepared and posted on 04May’11 here with newer data points pertaining to the intervening period in between. The trailing NIFTY P/E has indeed fallen from a level of 20.58 (04May’11) to 18.65(23Mar’12). Here’s the updated chart:

The smaller image on the right is the earlier version of this chart. There, I had done a straight line extrapolation of the most recent behaviour of the chart and predicted that the line will fall down and gradually approach an index value of 5,200 and a trailing P/E level of 18. What happened in reality (the bigger chart above) was more severe. The line moved down quite sharply (NIFTY dropped to 4,750 at one point) and rightward as well (expansion in EPS). Not that I profited too much from all of this. I am always long, so loss aversion by staying in cash/gold is my equivalent of profiting from a long/medium term, secular drop in markets. Ergo, I  havent lost much money in the interim and have ridden the dotted red line. Now, I had mentioned something called ‘cycloidal’ in my earlier post when looking at the chart – strangely enough, the line did indeed fall and is now even curling inwards, just like those cycloidal mathematical curves and/or their variants would. I don’t understand the pulse of the markets enough to figure out why this is the case but yes, we can at least look at the chart here and form our own conclusions.

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About Kaushal
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