Nifty valuations.

excelent sanjay: i read in economics times nifty is 12 yr over bough (mean calculation) in last week

Raja: overbought with respect to mean pricing of last 12 years??
Raja: did your economic times also mention that india inc is growing at highest pace since independence?

Anyway even i think its overbought
since the growth is fast
but the price of nifty is in line with growth.
20% growth in earnings expected 20 p.e already
My only issue is i can see nifty giving 20% gains by next year with downside risk of say 10-20%. So the market still looks ok. You get one quarter where IT misses estimates and this rosy picture could get very ugly in a second.
But for now fundas intact. Risk 10%-20%, reward 10-20% nifty still needs to go up 10% before it becomes a sell. Right now it might be a hold but its probably not a place to be doing fresh buying either. Your money might be safer in a fixed deposit till november.

I still don't know exactly why p.e.g of 1 is used as fair value. I suspect it has to do with long term dcf/interest rates. If anyone has some good literature on the subject do send.

I guess I should build a mathematical dcf model using initial growth rate, avg growth rate and terminal growth rate.
I have been meaning to do this but I am too damn lazy.

If someone can check sensex figures do let me know as well.
Whats sensex p.e right now? close to 20?
and whats sensex forward p.e?

Hmmm I just googled
it looks like a calculator already exists
http://www.moneychimp.com/articles/valuation/dcf.htm

I used eps of 200 for nifty
growth rate of 12% for next 5 years (8% gdp +4-6% inflation)
and terminal growth rate of 8%
+ return on appropriate index = 11% default
it tells me nifty fair value= 4687
I don't know how to work the numbers


Any funda experts out there????
I'd like to learn how this is done :)