Many retail investors are asking us that what we think about this market? Is it still worth to invest above 8000 levels? Do we really think that there is still more steam to keep this market moving up?

The honest answer is bit bitter, but we really don’t know where will this Bull Run stop or when bears will take the control. We do not take investment decisions looking at the market and where it is trading, and also comparing market price with our estimate valuations is our last activity to get long on any of the stock.

First, we look at the quality of the business and then the most important part of our analysis is to understand future prospects of business earnings and what to expect from them. If businesses pass these acid test then we look at the estimate valuations and at what price are those business trading in the market.

When Nifty 50 crossed 8000 levels, for us the overall Indian market has moved from fair value band to modestly overvalued band.

The way we calculate this is by comparing the total market cap of entire stock market by its GDP.

Ratio = Total Market Cap/GDP Valuations
Ratio < 50% Significantly undervalued
50% < Ratio < 65% Modestly undervalued
65% < Ratio < 80% Fairly Valued
80% < Ratio < 100% Modestly overvalued
Ratio > 100% Significantly over valued
We are today Modestly overvalued

 

This is the time before investing in any business we look at least for the minimum 15% – 20% discount to our valuations.

In the coming next blog I will be sharing with you the list of businesses and compare their market prices with their enterprise values and try to find which one are lagging within their industry and which ones are the most expensive businesses trading in the market to help you mitigate your risks within your investments.

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