I was looking at Nifty PE ratio historically. There are amazing observations. You can easily predict how markets are going to move in near future / long term.
If you look at the chart below, it shows 12 years Nifty values and PE ratio as reported by NSE
The chart clearly shows that there only 3 times when PE ratio have gone beyond 25. Once in Feb'2000 when it hit 28.5, Jan-2008 when it went up to 28.3 and recently in Oct'10 where in it went up to 26. If you see in all these situation Nifty peaked out and started going down. Finally PE ratio went up to 10.
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| NIFTY 12 years Analysis |
As of today Nifty PE ratio is in the range of sub-20. That means market is still overheated. Ideally it should be somewhere between 15-20. If thats true, markets are going to correct by another 20%. That will be the time when you can really buy any stock and will give you decent returns.
If you have lot of money to be invested in stock market for long term, please note that market may correct by another 15-20% in near term based on issues like Greek crisis, inflation, fuel prices or any other such reason. If there is any good news in the market it can still go 25% upside very easily.
I think its better to buy in small quantities to avoid risks at this stage. You can alternatively buy selected scrips based on individual analysis.
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