First and foremost, This is no Doomsday forecast.
Just a view to exercise caution in markets since valuations are getting stretched.
Nifty is close to 10500 right now and;
This is no more a stock pickers market but a traders paradise.
 
When we say be value sensitive, a lot of people argue saying, XYZ is trading at 60 p/e because it is the market leader so it will sustain and 2025 will be great.
 
Understand the journey of a stock.
Lot of  small,mid & even large cap stocks having completed their cycles of over-valuations in the past were in the undervalued territory in 2013-2014. From there they rallied sharply. As of date, Lot of them are in the fairly valued or over valued territory. That is when Analysts start estimating earnings of 2020 and justifying the valuations or over-valuations. But, A stock can fall to the under-valued territory again as well, We can claim valuations are attractive considering 2025 earnings but then, Before the stock prices rallied, we had no good future? If the future was expected to be good then why the valuations were low?
 
Understand the cycle from Undervalued to Overvalued to Undervalued again.
 
So it can happen, there is nothing like, This stock won’t correct because it is fairly valued, or say Asian Paints cannot correct from 60x P/E because 2020 numbers are expected to be good.
 
This gyaan might seem pointless right now, Remember it when the fall starts 🙂
 
Prem Doshi
ACE Equities

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