Rajandran R FollowCreator of OpenAlgo - OpenSource Algo Trading framework for Indian Traders. Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Building Algo Platforms, Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in

Nifty PE Ratio Analysis – Are we at the Tipping Point?

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PE – Ratio a simple metric used to measure the valuation of the market. From the numbers one can understand whether the markets are cheap, expensive or fairly valued. Current PE Ratio Metric at 26.86 is little above the 2 standard deviation.

So how does it matters to a common investor? In simple statistical terms – Approximately 95% of the area of a normal distribution is within two standard deviations of the mean. i.e in simple terms 95% probability that Nifty is highly overvalued in normal distribution terms with mean reversion tendency is relatively high. Year 2000 and 2008 are the other periods where Nifty crossed 2 standard deviation where the end result is not a good outcome for the investors with short term or medium term horizon.

But one can still argue that markets are lognormal distributed rather than normal distribution. And often market shows a tendecy of “Irrational exuberance” i.e an overvalued market can remain overvalued for a prolong time without any logical reasons.

Nifty Historical Charts

However Lets consider a what-if scenario. What if the markets are really gonna be overvalued? how well you are protected from any potential downside risk? Do you consider hedging your investment portfolio or planning to reduce your asset allocation in stocks and shift some portion of your money to different safer asset class? If your answer is yes then possibly you are a well mature inventor and willing to handle any kind of market situations.

Its not just about how much money you make in a bull market. It also matters how good you manage when there is a turbulence.

So this time will it be different or just the history gonna rhyme?

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Rajandran R FollowCreator of OpenAlgo - OpenSource Algo Trading framework for Indian Traders. Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Building Algo Platforms, Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in

2 Replies to “Nifty PE Ratio Analysis – Are we at the…”

Meaningful study. Thanks

Dear Mr.Rajandran,
you are doing a lot of teaching working wide your write-ups and videos.
I am your follower for 10 years.
But we are missing your http://nsetracker.blogspot.com/ charts a lot.Is there any chance to revive it again.

Meaningful study. Thanks

Dear Mr.Rajandran,

you are doing a lot of teaching working wide your write-ups and videos.

I am your follower for 10 years.

But we are missing your http://nsetracker.blogspot.com/ charts a lot.Is there any chance to revive it again.