The market will fall next year?

according to experts

I read a recent article couple of days back in Economic Times, which said that the Nifty may fall in 2023.

And while I don’t have an opinion on this, the article was filled with jargon, so I just thought I’ll summarize it for our readers here.

There were a few interesting statistics that the article pointed out. Let’s look at some of them:

1. In the last one year, Nifty has generated a 7% return (now you know why we say equity investments should be long-term only?) However, the US markets have been worse - S&P 500 has actually fallen by 14%. So we don’t know why the Nifty is performing better when global markets are falling

2. The PE ratio (don’t worry, it’s explained below) for Nifty is 23.4x, which is 17% higher than the long-term average

   For those who don’t know, PE ratio is the Price to Earnings ratio. It measures price of a share with regards to the earnings generated by each share. So in this case, with a PE of 23.4, this means that for every 1 rupee earned by the Nifty index, investors are paying 23.4 rupees. Now while this seems super-high, most companies have PE ratios in two digits only (some even three digits). So this is not a cause for concern

3. The concern is here - the long term PE ratio for Nifty has been around 20. Right now, it’s 23.4 - this indicates that at the current level, the Nifty index could be overvalued

4. India’s market-cap-to-GDP ratio (again, explained below) is at 110%, while the average has been around 81%.

   Market Cap of India = Total value of all stocks traded

   GDP of India = Total value of all goods and services produced in the country in a period of time

   Experts say that if this ratio exceeds 100%, it means that the value of stocks traded is actually higher than the total value of goods & services produced in the country. And right now, it’s at 110% - this could mean that the market is overvalued.

   However, this ratio for US is at 140%, so we don’t know.

   Fun fact: This ratio is also known as the “Buffet indicator”

Well, like I said, I’m not an analyst to determine whether the Nifty is overvalued or not. In fact, most analysts also get it wrong, so who am I to judge? 😛

I just wanted to translate financial French to English for folks to understand. And if you think we did a good job at this translation, it would mean a lot if you could like and share this article with friends on WhatsApp, LinkedIn and/or Twitter. We’re at 8,500 subscribers now, and I hope to reach 10,000 by end of January 🙂

Thanks for reading. See you next week!