Indian Stock Markets - Are they Overvalued ? ... as on 8th August 2016

Indian stock market seems to be on the roll. Fuelled by series of positve news : Good Monsoon + Low Inflation + Likely fall in interest rate + Low commodity prices like crude and metals + passage of crucial bills (reforms) like GST, markets seems to have taken cue and is running up in one direction.

But there are few concerns to it: 

• The impact of good monsoon takes couple of quarters to play out.
• The 52 Week (One Year) high of BSE sensex is 28418 and today it is 28180. We are very close to the one year high levels.
• And the All time high of sensex is 30025.
• Meawhile, the Mid and small cap index have run up way long. Midcap index hit a new high of 12276 in July 2016 and Small cap index is very close to its all time high of 12,204.
• The Sensex PE is 20.2 Vs long term average of 18.
• Midcap inces PE is commanding a premium over sensex at 25.9!
• And the small cap PE is at 42.8!!!
• The Price to book of Sensex is 2.9, whereas for Midcap it is 2.6 and small cap is @ 2.

Inspite of weak global markets, Indian Index is at peak along withglobal markets like S&P and Dow Jones. That makes the bull run bit worrisome.

Unless the earnings upgrade happens, holding on to the current valuations could be at risk. For those investors who practice the simple investors philosophy of Buy Low and Sell high - this is not the market.

Better to book a partial profit and remain in sidelines till such times clarity emerges.