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Markets Stick Their Head Above 5000

The markets stayed weak today as results came in, and despite going below the 5,000 level a few times in the day, the Nifty recovered to hover just above it at 5007.

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The good news is that the recent results have boosted Nifty’s P/E to 230, which is a reasonable move. With the same time last year showing a sudden DIP in the EPS, the Nifty EPS growth has suddenly shot up to 6%. Here’s a normalized P/E graph (normalized P/E = p/e one year ago to what the real EPS growth was 12 months later)

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Note though that the current P/E ratio is 21.07.

As you can see above – the gap between normalized P/E and EPS growth noted is huge – that’s an indication that markets can remain irrationally valued for large stretches of time. It’s also likely, that irrationality will kick in on the other side – EPS will keep growing fast, but the P/E will stay depressed, like in 2003-04.