Sunday, April 24, 2011

Full Year Results and P/E: What do they tell us?

The Full Year Results are pouring in and nothing exciting about the Results from Infy, TCS and Reliance. Gold is at an all-time high and the P/E ratio is at 22.18. What are all these telling us.

1. Lets start off with the P/E ratio. As per data from the NSE, its at 22.18 suggesting that the index is fully valued.It has gone up to a ratio of 28 only twice in 2000 and 2008 culminating in major falls. Nifty P/E at 28 leads to Nifty at 7422.

2. If Nifty corrects from here, fair value comes at 3700 - 3900 band.

3. The Annual results have ranged from just meeting expe3ctations to poor. The Good results are usually declared early. So the Result Season has come and gone.Private Banks have shone and here is a excerpt from Sanil Sonalkar.

Both the leading private sector banks, HDFC Bank & Axis Bank, registered robust Q4 numbers, with each reporting >30% increase in net profits (on a Y-O-Y basis). Dividend payout has also been good with HDFC bank announcing a dividend of Rs. 16.50/- per share while Axis Bank rewarded its shareholders with a dividend of Rs. 14/- per share.

Resurgence in retail demand, a healthy ratio of low-cost CASA deposits & improved NIM's have resulted in such stellar performances. An investor with a reasonably long investment horizon (say 10-20 years)must definitely stay invested in these stocks as these are likely to continue outperforming the rest of the market.

The only sore point is that unlike IT companies, private sector banks never reward shareholders with corporate benefits such as bonus shares, interim dividend and the like (for obvious reasons).

However, stay invested for the long-term.

4. Gold is at an all-time high and Japan is planing to raise fresh debt to aid rebuilding efforts. This makes one cautious on equity as an asset class.

The Markets are in a range and only a breakout above 5944 would lead to fresh upsides and a break below 5650-5735. Till then we continue to grind down in a range.

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