Weekly Market Recap
It was a choppy week for the market where indices throughout the week opened lower but managed to recover till closing as a result the net change was nominal. Friday was exceptionally volatile where NIFTY dived in an early session to make an attempt towards its low; however, a decent recovery came in that eventually recouped all of its losses.
In the week gone by the benchmark, SENSEX closed higher by 179 points or .34% at 52907, similarly, NIFTY added 52 points, or .34% to close at 15752. While BANKNIFTY ended the week in negative territory with a marginal loss of .26%.
Current Outlook
The technical configuration is almost the same as we saw last week. As I wrote last week, NIFTY might have to face a challenge at the support-turned-into-resistance blue horizontal line, as expected NIFTY faced turmoil in the battle between buyers and sellers. Though sellers appeared to be in a dominant position at the opening it’s the buyers who won the battle in the end. The good news is the market had a weak opening and a strong closing; this scenario goes in favor of bulls. This suggests that the selling is being absorbed by the strong hands. However, NIFTY has not been able to close above the resistance line which is still a cause of concern.
Moreover, NIFTY is painting a classic downtrend pattern with lower lows and lower highs where the price is below the moving averages and short-term moving averages are below the long-term averages.
The first-quarter earnings are about to start which makes it important to analyze the market fundamentally. The last time when I mentioned the NIFTY PE was 24, currently NIFTY is trading at the earing multiple of 19.46 which has fallen drastically and below the historical standard of the overvalued zone. In fact, the current PE is below the last twenty years’ median PE i.e., 20.47. This is thanks to improved earnings and bear market falling prices. I think this is happening because earning estimates are no longer soaring and are beginning to flatten.
It is notable that the P/E is finally within the normal range, albeit falling below the median is still a major cause of concern.
Conclusion
Whether the market is overvalued or not, the earnings will decide, but at least it is back within the normal range. If this is a sign of bear market progress, I expect actual earnings will fall short of estimates, and that prices will continue to fall. And I would not be surprised to see the NIFTY get back to the undervalued level below 15. Falling prices will help that happen but falling earnings will cause the value range to move lower, making it harder to reach undervalue.
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Be Patient; Be a Savvy Investor..!!
Pankaj