nifty p/e chart and valuations...

my latest nifty p/e chart valuations and mkt ahead view...

last time nifty topped out on the intersection blue line and upper slanting gray line(marked by oval), this i had marked on the pe graph in advance only.

current zone where profit booking is coming since october 2009 is as shown by gray rectangle on chart that corresponds to p/e between 23 and 24.

note also how the p/e curve lines are getting restricted between the two upward slanting gray lines.

since the last earnings quarter the eps of nifty50 shares has been upgraded by about 5%. while in the last one year the nifty50 eps has been upgraded by little above 10 percent. because of this upgradation in eps the valuations do not look as expensive as they were in december last year, hence we seen money coming in to mkt and mkt moving higher above 5300.

with the continuing global recovery in financial mkts and economic growth, the nifty listed companies have a headroom for better profitability and earnings in coming years which will have a favourable impact on the earnings and eps of the nifty50 shares. so an expectation of 15-20% eps growth in next few years cannot be ruled out.

therefore it can be expected that on any major profit booking there will be a support led by buying at lower lvls by financial institutions, lets say initially somewhere near average p/e of 19-20(which by current eps comes to about 4450 or so).

and if jan-mar 2010 earnings upgrade also takes place(depending on favourable quarterly results, this takes some time) then this nifty initial support lvl may be shifted upward.

added in evening in reply:
the graph is for nifty50 and same thing doesn't apply to sensex30 stocks, the multiple could be different. since i have not tracked sensex graph, i can't say exactly about the sensex lvls.

on nifty50 perhaps 16-17 times current year eps is cheaper in a bull mkt, and 10-11 in bear mkt. 23.5-24 resis on upside corresponds to about 5500 or more as resis currently, which is also a technical resistance on charts.

there can be situations when
1)nifty50 eps is good and growing but money not coming in or is moving out of the mkt->low p/e,
2)eps not growing or negative growth but still large money inflows(money chasing stocks)->euphoria stage.

depending on fundamentals and the state of global economics and money flows(liquidity conditions) we have bull, bear or sideways mkts, the p/e multiple varies between cheap, fair, expensive or euphoric/bubble valuations.

if we are able to assess the state we are in we can take advantage and be successful to a large extent in the mkt. the p/e chart can help us alongwith other fundamental and technical data in taking such investment related decision.