Is Indian stock market undervalued?
Based on the Buffet Indicator of domestic market valuation to its GDP, India stood at a ratio of 94.05% much undervalued than the market of Japan and the US but is much overvalued than the UK at a buffet indicator of 89 per cent, Brazil at 53.01 per cent, Germany at 47.42 per cent and China at 58.76 per cent.
Market capitalization versus the long-run equilibrium
The American stock market currently appears to be overvalued by 52%. In other words, it would take a 34% drop to bring the market back to its long-run equilibrium level. At the last all-time high, on November 8, 2021, the market was 88.2% overvalued.
Today, nifty is trading at an all-time high of 18,000+ points. But in terms of dividend yield, it is not so overvalued. Currently, the dividend yield (DY) of Nifty-50 is at about 1.11% levels.
It is now the most overvalued sector under our coverage. The Utility sector only fell 4.21% in April and is close to unchanged this year, having increased by 0.08%. In our view, it is also overvalued, trading at a 7% premium.
Simply put, this ratio is derived by dividing the total market capitalisation (or the monetary value) of all listed stocks by the nominal GDP of the concerned economy. As Chart 1.48b shows, for BSE Sensex, this ratio is still much higher than the 10-year average, suggesting the market is overvalued.
Overvalued stocks are ideal for investors looking to short a position. This entails selling shares to capitalize on an anticipated price declines.
Under normal circ*mstances, the market capitalization is almost equal to the GDP. If this ratio falls below 0.7 or so, it could mean that the market is undervalued and could provide a buying opportunity. On the other hand, if this ratio crosses above 1.25, the market is said to be overvalued.
By the same token, though, holding on to a company that is overvalued is a risk. In these situations, it's typically best to sell your stock and be happy with the profits you've made no matter what the stock does in the future.
Our experts agree that it's likely to be a bumpy road ahead for the remainder of 2022. But, crash or no crash, recession or not, history tells us time and time again this is part of the journey.
Is Adani transmission overvalued?
Is Adani Transmission Ltd undervalued or overvalued? The key valuation ratios of Adani Transmission Ltd's currently when compared to its past seem to suggest it is in the Overvalued zone.
India SENSEX recorded a daily P/E ratio of 23.250 on 19 Aug 2022, compared with 23.390 from the previous day. India SENSEX P/E ratio is updated daily, with historical data available from Dec 1988 to Aug 2022. The P/E ratio reached an all-time high of 36.210 in Feb 2021 and a record low of 10.360 in Oct 2008.
The obvious answer is yes, the market will eventually recover. But investors and traders alike will be interested in knowing when it could happen.
But the major indexes will likely end 2022 higher than they stand now, as rock-bottom share prices begin to promise a buy-low opportunity that outweighs the risk of further decline, the experts said. As investors eventually jump off the sidelines, the market will stabilize and begin to recover, they predicted.
Since the end of World War II, there have been 11 official bear markets, defined for these purposes as a 20% decline from a previous all-time high. If no new all-time high is set, we remain in the bear market.
As of now it is ranging from slightly overvalued to vastly overvalued depending on what you are looking at. Personally I think the market IS overvalued by about 3000 or so points and fair value may be around 13,000 - 14,000 levels.
CDSL is a mid-cap company with a market share of Rs 16,701 crore and a sector leader, the stock has zoomed 195% on a YTD basis. Interestingly, CDSL has a PE of 65.59 which is far less than its sector of 101.94, which shows that CDSL is not overly valued at this point.
Nifty PE ratio at 27.34 is still significantly lower than the 5-year high of 42 multiples and slightly lower than the 5-year average of 27.45. The Nifty PE ratio is also lower than the 1-year average of 33.23 and 2-year average of 29.87.
Radhakrishnan Damani – Top Traders in India
Radhakrishnan Damani is the richest trader in the country and his current portfolio stands at Rs. 161,356 crores as of June 2022.
| Stock | Holding Value (Rs.) | Dec 2020 % |
|---|---|---|
| Bank of Baroda | 40,095.2 Cr | 71.6% |
| Bank of India | 16,336.8 Cr | 89.1% |
| Bharat Electronics Ltd. | 36,357.5 Cr | 51.1% |
| BEML Ltd. | 4,072.5 Cr | 54.0% |
Who is the biggest investor in India?
| Rakesh Jhunjhunwala | |
|---|---|
| Education | Chartered Accountant |
| Alma mater | Sydenham College of Commerce and Economics The Institute of Chartered Accountants of India |
| Occupation | Businessman, investor, stock trader |
| Spouse(s) | Rekha Jhunjhunwala |
Relative Valuation Concerns
Amazon stock is overvalued on a relative basis. Firstly, AMZN stock is trading at 1.98x its sales and 15.81x its cash flow, conveying that the stock's overvalued on both an accrual and a cash basis.
So, what is a good PE ratio for a stock? A “good” P/E ratio isn't necessarily a high ratio or a low ratio on its own. The market average P/E ratio currently ranges from 20-25, so a higher PE above that could be considered bad, while a lower PE ratio could be considered better.
| Ticker | Price | EPS (TTM) |
|---|---|---|
| AAAQC D | 9.84USD | 0.43USD |
| AAWW D | 99.85USD | 16.14USD |
| ADP D | 256.62USD | 7.04USD |
| AERI D | 15.05USD | −1.04USD |
| S.No. | Name | CMP Rs. |
|---|---|---|
| 2. | Kwality Pharma | 294.60 |
| 3. | Elpro Internatio | 79.15 |
| 4. | Hinduja Global | 1596.75 |
| 5. | Suumaya Indust. | 45.05 |
At 115% and above the indicator shows a market that is 'significantly overvalued' (Table 1). For India, the indicator stood at a high of 122% at the end of the third quarter of 2021 (Figure 5), raising concerns for the upcoming growth stability.
This study does not indicate any explosive price behaviour in the Indian stock market. Thereby, the presence of any bubbles during the study period is not detected. The sharp decline and the subsequent recovery of the stock prices during the past 15 months was most probably an overreaction to the pandemic.
Having said that, there's a likelihood that markets will fall even further before it gets better. Indian stock markets are still expensive on an aggregate basis notwithstanding the higher growth that India is witnessing versus other emerging markets.
#1 Tata Steel
This puts Tata Steel first on our list of undervalued bluechip stocks that should be on your watchlist this year. A part of the well-known Tata Group, Tata Steel achieved its highest ever consolidated EBITDA of Rs 308.9 bn with 71% year on year (YoY) growth in the third quarter of fiscal year 2022.
“Valuation wise, the ITC stock has always remained undervalued. Cash flow wise, ITC has always produced a higher amount of cash and free cash which has just given work to so many other businesses.
Why buy Tata Motors share?
We slash FY23 EPS by 24 per cent but retain buy rating on Tata Motors. Tata Motors' Q1 consolidated EBITDA dipped by 54 per cent on a YoY basis and 71 per cent on a QoQ basis to Rs 24.1bn. Q1 standalone CV EBITDA margin dipped to 4.1 per cent versus 6.2 per cent in Q4FY22.
CDSL is a mid-cap company with a market share of Rs 16,701 crore and a sector leader, the stock has zoomed 195% on a YTD basis. Interestingly, CDSL has a PE of 65.59 which is far less than its sector of 101.94, which shows that CDSL is not overly valued at this point.
As of now it is ranging from slightly overvalued to vastly overvalued depending on what you are looking at. Personally I think the market IS overvalued by about 3000 or so points and fair value may be around 13,000 - 14,000 levels.
Index: NIFTY 50 Quality: Very Good Valuation: Somewhat Undervalued Valuation: Undervalued.
The key valuation ratios of Tata Elxsi Ltd's currently when compared to its past seem to suggest it is in the Overvalued zone.
The Sensex fell below the 59,000 mark and the Nifty crashed below 17,500 as the recent rally turned out to be short lived. ITC and Nestle were among the top gainers today. Tata Steel, Asian Paints, and Wipro on the other hand, were among the top losers today.
Under normal circ*mstances, the market capitalization is almost equal to the GDP. If this ratio falls below 0.7 or so, it could mean that the market is undervalued and could provide a buying opportunity. On the other hand, if this ratio crosses above 1.25, the market is said to be overvalued.
The obvious answer is yes, the market will eventually recover. But investors and traders alike will be interested in knowing when it could happen.
Our experts agree that it's likely to be a bumpy road ahead for the remainder of 2022. But, crash or no crash, recession or not, history tells us time and time again this is part of the journey.
Where do you see the Sensex/Nifty by end-2025? Assuming a 13-14 per cent CAGR, which we believe is sustainable in a medium to long term amid growing economy and relatively strong economic setup amid global milieu of uncertainty, we see Nifty levels at 25000 by end-2025.
