Friday, July 23, 2010
PE R chart of Nifty from the year 1999
Nifty's PER(Price/Earnings Ratio) chart from the year 1999, prepared and posted by Shri Abhay Somkuwar in his blog "value trading" on 6th April 2010 is reproduced above. PER exceeded 24 only on two occasions ie. in 2000 and 2008, after a gap of eight years. On both occasions heavy market crash followed and PER came down to 12. As financial cycles are generally of eight years duration PER exceeding 24 may not happen now and then. Therefore, ordinary retail investors are advised to ignore the profit beyond 23 (2+3=5, all fib numbers) and stay away from the market till PER reduces to a reasonable level after a correction. Who are extremely confident and able to take risk can ignore this and try their luck.