We have the equity markets touching record highs every day. The Sensex presently stands at close to 33,400 and the Nifty close to 10,400. What are we expecting going forward and how are the portfolios positioned?
The Sensex trail PE ratio currently stands at 25. The median trail PE for the Sensex is 19. By that yardstick the markets are over-valued. We now look at the historical 3 year returns for different PE Bands.
As mentioned above there is a possibility that markets can continue to go up even at the PE Ratios (the highest 3 year return for the band 24-26 is 12% annualized). However, the average 3 year return in the price band is -9%. Caution is therefore advised.
Accordingly we have, on all portfolios, reduced the allocation of equity. We continue to hold on to only a very small portion of equity in the portfolio. (This