A large number of readers have queried me regarding the following:-
(a) Where to find data on PE of Nifty or Sensex or other major Indices?
(b) Whether to invest in businesses with moats or any business?
(c) Should they invest now?
I shall answer in brief through this post.
There may be no separate requirement for readers to calculate the EPS of sensex. It is calculated based on the profits earned by the companies composing the Index. Its a bit complex calculation. Simpler is to follow these Pre-Calculated Index PE ratios at BSE and NSE websites. The PE ratio of Index will change with the change in Market Capitalization ie it will increase or decrease. The market capitalization of the company is nothing but the share price multiplied by number of shares. So as the price increases or decreases PE of Index also will change, earnings remain constant for the past year.
(b) Only invest in businesses/companies with wide and deep moats around them because they will stay for 30-40 years, other businesses will be swallowed by competition and thereby swallowing our investment too. They are generally very good businesses and good quality businesses never come cheap. Such businesses are always at a premium. Once in a while in 2 or 3 years the markets do give an opportunity to buy such businesses at throwaway prices either due to market sentiments eg Capital Goods Sector was beaten down last year and stocks like BHEL, Crompton Greaves and L&T were available at Rs 100 per share, Rs 75 and Rs 800 respectively. Or due to some temporary problem in the company’s operations (not financial misappropriation but a car model failing or some such stuff) eg Tata Motors or Maruti selling cheap, a good bank stock selling cheap due to a one time bad loan, etc
A good investor would have pounced at such an opportunity and then sat tight for a few years. Remember our target is 17-18% returns for at least 40 years. Growth is a dream, history is a fact.
(c) For disciplined investors, SIP is only a method of inducing discipline. It may not be a fool proof system but it is a lot better than trying to time the markets. I do not know how much upside the market has; Nor do I know the downside. So your good MF schemes may continue on SIP if you have been investing in them in the last three years also. But direct equity could halt and wait for opportunities.
Even now some stocks have a big upside potential, Noida Toll Bridge comes to mind. It is giving a tax free yield of 10% on investment in the form of dividend and the cash flow is sufficient to maintain this dividend for at least 10 years in future. I am paid at a rate higher than bank/PPF rates and can therefore keep waiting for price appreciation even if it happens after 10 years.
Sensex trading 1 or 2 sigma below mean may happen once in 8-10 years. If you have that patience and discipline, then you can dream of being a Buffett equivalent in a lifetime. That would be the ultimate. But most of us are mortals controlled by The Selfish Gene.
Hope this answers a lot of questions.