BSE SENSEX historically has been trading within the limits of 10x and 22x times its 12 months forward PE. This is very much clear from the chart attached for SENSEX spot price versus its 12 months forward PE bands. See how in early 1994, 2000 and 2008 SENSEX retraced after touching this 22x levels. And in mid 1992, 2002 and in 2008 SENSEX bounced off the lower band of 10x.
Another interesting observation is that each of the 10x, 13x, 16x, 19x and 22x levels acted as supports and resistances in the past. The one year forward PE multiple for SENSEX on today's date is around 17.7x. This is between the levels of 16x and 19x.
Doing a simple calculation, 19x indicates a level of 15,900 in the spot and 22x corresponds to 18,400. So 15,900 is the next resistance for SENSEX after which it'll retrace a bit, may be to 16x or even to 13x levels and if it crosses 18,400 within the next 1 year, we can say it will be too much overvalued.
No comments:
Post a Comment