31 Dec, 2018


In CY2017, markets had given exceptionally well returns. This was the time when markets were making new highs every other day. NIFTY had delivered the 28.6% return, whereas NIFTY Midcap & NIFTY Smallcap had delivered 55-60% return in single year. High liquidity was the primary reason to that rally. In CY2017, NIFTY witnessed the growth of 28.6% while NIFTY earnings grew by just 5%. It led the Price – earnings ratio of NIFTY to reach at 26.92 (as shown in the table) by end of CY2017 and had made the markets overvalued.

Date NIFTY 1 Year Return P/E P/B Div Yield
CY2010 6,135 17.9% 24.48 3.87 1.02
CY2011 4,624 -24.6% 16.75 2.76 1.63
CY2012 5,905 27.7% 18.68 3.13 1.40
CY2013 6,304 6.8% 18.70 2.99 1.48
CY2014 8,283 31.4% 21.16 3.49 1.27
CY2015 7,946 -4.1% 21.49 3.19 1.46
CY2016 8,186 3.0% 21.93 3.10 1.35
CY2017 10,531 28.6% 26.92 3.55 1.08
CY2018 10,860 3.1% 26.16 3.43 1.24

By the end of CY2017, we at IFM were not comfortable with equity markets due gigantic valuations. We were expecting that even in optimistic scenarios markets will not go & sustain beyond 11000 by 2018 end. So we recommended the clients to book the profits, avoided midcaps & smallcaps and remained stick to debt funds (accrual theme), balanced funds and largecap funds as per their risk profiling.

In CY2018, markets witnessed rollercoaster ride & remained highly volatile through the year. NIFTY ended the year with marginal 3% gain whereas NIFTY Midcap and NIFTY smallcap are down by 15-30%. It clearly shows that there is huge pain in the markets. Investors who stayed invested in midcaps and smallcaps burnt their capital.

Going forward, Earnings growth is still not picking up and markets are trading at PE of 26 which is still very high. 2019 is also going to be volatile due to global factors, future earnings growth, elections, crude oil prices and currency.

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