It's a Roller Coaster Ride ; Riding the Bull Will Not Be a Cakewalk As Stocks Don't Come Cheap Anymore. What Should You Avoid Now?
Business Today › December 17, 2007
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It's a Roller Coaster Ride
Riding the bull will not be a cakewalk as stocks don't come cheap anymore. What should you avoid now?See the full content of this document
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It's a Roller Coaster Ride ; Riding the Bull Will Not Be a Cakewalk As Stocks Don't Come Cheap Anymore. What Should You Avoid Now?
By Tejeesh N.S. Behl and Clifford Alvares
When the reliance Petroleum stock was downgraded by CLSA in early- November, its price tumbled by more than 20 per cent. The November 3, 2007 report titled Barrels and Bubbles observed that the stock was trading at a "50-70 per cent premium to even the most expensive refinery new-builds quotes," at the then price of Rs 269. Similar companies were trading at almost half the valuations in the US. Ever since then, the market has been grappling with the big question of valuations: what is fair value?There have been three gut-wrenching corrections of over 1,000- points each since October 9, 2007, when the market first crossed the 18,000 mark. In fact, this 18,000-20,000-band is turning out an extremely volatile one. Both foreign and domestic investors have been booking profits. Yet, even after the correction, the current market is trading at a lofty 25.07 times earnings and, by historical yardsticks, appears overstretched by 47 per cent from the market's seven-year average. Wherever you look in the market, the signs of overstretching are visible. Last month saw 143 companies hit 52- week highs out of 3,065 actively traded stocks. Even now, more than one in four stocks (about 28 per cent or 863 stocks) are trading within 10 per cent of 52-week highs.The valuation numbers coming out of the market suggest that there are more areas than one where the stock prices have run ahead of their fundamentals. Brokerages have already begun to call some stocks overvalued and some are even reducing stock price targets. Recently listed brokerage company, Motilal Oswal, said that in its universe of stock coverage, the engineering and capital goods space appears to be the most overvalued. Says Man...See the full content of this document
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