7 reasons why shares in India may not be a great bet now

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Since Sept 2013, the Sensex has rallied from 18,000 points to 27,000 points, making shares in India very expensive. A staggering rally of 9000 points or 50 per cent. Those who had not invested last year are a dissapointed lot and those who would be buying now, would be doing so at horribly expensive rates. We are not suggesting you do not buy shares. All we are saying is buy when the markets fall and someday they will. Here are 7 reasons to avoid buying shares now and wait for dips.

Valuations turning expensive

The Sensex price to earnings multiples at close to 20 times is the highest in the world. This makes scope for appreciation of stocks from the current levels minimal. All of the BRIC and emerging market economies are much cheaper as compared to Indian stocks markets.

Another expensive parameter

The value of all companies listed on the stock exchanges in India as a percentage of GDP is at its highest in a little over three years. The market cap is around Rs 93 lakh crore or almost 86 per cent of GDP. This means the markets have reached fair value and any appreciation from here on would mean stretched valuations.

Stretched valuations

Most stocks have seen their prices doubled and tripled from levels seen a year back. However, there maybe some pockets like say the share price of Coal India, which has not gone up much, where one could buy.

Fast improving fundamentals factored in price

All good news has been factored into stock prices and where do we get more good news now. Stable government, improving CAD, and falling inflation have all been discounted.

Nice theory

Waraen Buffet says on stocks, "Be greedy when everyone is fearful and fearful when everyone is greedy". We cannot see anyone fear at the moment.

Stocks with poor fundamentals rising

Stocks with poor fundamentals and huge accumulated losses are rising. This happened during the 2008 boom and stocks crashed thereafter. When speculation in stocks with poor fundamentals happens it is a worrying sign.

Rates may rise

It's almost certain that interest rates in the US would rise, when that happens, markets could fall and it would be a good entry point for investors.

Read more about: sensex, shares, coal india, cad, gdp
Story first published: Saturday, September 13, 2014, 8:14 [IST]
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