In my last blog dated October 27, 2024, I mentioned about the end of the hypodermic advance which has been the most boisterous and prolonged in the stock market’s history. Since then, the major indices have been corrected significantly which has not only rabble-roused the investors but given affliction.
Although the benchmark index NIFTY has corrected over 15%, many stocks have plunged 30-50%. Now, that the earning season is mostly over we barely see any positive sustained reaction among stock prices. Moreover, the rally we saw post-union budget seems to have fizzled out gradually.
The crucial driving force for the direction of the stock prices is their earnings and the trend in the P/E ratio. It is indispensable to note that during the bull market, the P/E ratios are in a rising trend, contrary to the belief that a rise in the P/E ratio is not propitious to buy, however, the compounding effect of both rising earnings and P/Es makes it easy to have extended period of positive return in stock prices. Hence, a persistent falling trend in P/Es without much change in stock price may ultimately lead to a sharp fall in stock prices.
After closely observing the trend among P/E, PB (price to book value), and Dividend Yield ratio in correlation with the stock price. I have found that the correction may not be over yet and we need to take profound measures to contain the risk.
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Be Disciplined.; Be a Savvy Investor..!!
Pankaj