Time To Book Profits: Indian Stock Markets Remain Expensive

Business

oi-Sunil Fernandes

By Sunil Fernandes

Published: Saturday, November 4, 2017, 7:03 [IST]

The indices this week, hit a new lifetime high as has been the case week after week. At some stage this is likely to stop, but, nobody knows when.

It is always impossible to time the market. But, preserving capital is also utmost when you are investing. There is no way you can time the market, but, you can go by some indicators, which suggest that markets are expensive.

The price to earnings ratio for Sensex companies is now almost at 25 times trailing EPS. This is way higher than the long term average of 16-17 times. This means the markets needs to fall by at least 25 to 30% to come down to those levels.

Markets like France, Germany, US, Canada, Hong Kong and even the Dow Jones trade at p/e levels ranging from 13 to 19 times. India trades at almost 25 times. Clearly, this is an expensive market that is largely riding on mutual fund money. So, if you have made decent money, then it is time to book profits - at least partially.

Markets are unlikely to fall sharply, unless there is a full-fledged war or a major economic crisis that unfolds. At least the latter looks a remote possibility. This means you have to keep buying at higher prices and hope that the markets make fresh highs.

It is best to take some profits off the table, instead of eroding your capital. It is impossible to believe that markets will keep trending higher without falling.

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