Expensive Market
Markets are top heavy and with macro deteriorating there could be sharp correction in the share prices. Currently, Nifty is trading at 26.7x P/E (ttm) which historically has been close to tops
Worsening Macro:
Brent Crude has almost tripled from below $30 to now $80
Rupee has depreciated over 6% since start of the year, adding fuel to the fire
India 10-year G-Sec yield is now at an year high.
And we are caught in a vicious circle
A Self-fulfilling prophecy:
$ Rising crude ----> Worsening Fiscal ---> Depreciating Currency ---> Worsening Fiscal
$ Rising Crude + depreciating fx ----> Rising Inflation ---> Rising Rates ---> Lower Valuation Multiples
Expensive Valuation + Worsening Macro is perfect recipe for disaster as it will eventually lead to deteriorating micro (read slower growth / margin pressure/ below expectations earnings)
What could be extent of damage?
The damage in the past has been as severe as 60%+ in 2008 when the world hit Global Financial Crisis or it could be as mild as 10% as seen in the recent past.
Whether the correction occurs immediately or over next few months is a difficult to answer but it seems eventuality! Rather let me say timing of the correction is uncertain but the correction is certain to occur.
INVEST SAFE AND BE PREPARED!
