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Is It A Good Time To Invest

80% investors make below average returns because they invest when the market is highly priced with a 3 - 5 year horizon

We see that investors who invest with a 10 year horizon, have a higher potential to make good returns by staying invested.

Let's find out when is the right time to invest in equities

The PE scale serves as an objective measure of how pricey the markets are at a given point in time. It shows the investor how much he is paying for every rupee of earnings.

Mouse over on the below sections to know more

Current Market PE:
IDFC Mutual Fund - PE Ratio Scale

Cheaply Priced

When PE < 16, only 1% net money flow was experienced

Return investors saw before investing.
Returns investors made 3/5/10 years thereafter.

Past 1 Yr Return

-2.5

P/E

<16

3 Yr Return

28.9%

5 Yr Return

29%

10 Yr Return

17.9%

Historical data shows that inspite of poor near term return investors who displayed courage and temperament end up with good 3 – 5 year return

Fairly Priced

PE between 16 – 19, 19% net money flow was experienced

Return investors saw before investing.
Returns investors made 3/5/10 years thereafter.

Past 1 Yr Return

16.5

P/E

16-19

3 Yr Return

18.2%

5 Yr Return

19.2%

10 Yr Return

15.4%

Investors look at moderate returns and end up with reasonable 3 – 5 year return

Expensively Priced

When PE > 19, 80% net money flow was experienced

Return investors saw before investing.
Returns investors made 3/5/10 years thereafter.

Past 1 Yr Return

30.2

P/E

>19

3 Yr Return

3.3%

5 Yr Return

7.8%

10 Yr Return

14.3%

Investors look at moderate returns and end up with reasonable 3 – 5 year return

  • Cheaply Priced
    PE<16

  • Moderately priced
    PE 16-19

  • Expensively priced
    PE>19

Source: Latest PE data of S&P BSE Sensex from Bloomberg

What should you do?

  • If investing in the RED ZONE, keep a 10 year+ horizon
  • Invest in the Green & yellow zone, if looking at a shorter horizon
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Daily Sensex P/E (price from BSE, trailing 12 months earnings from Bloomberg) for the period 1st October '99 to 31st March '17.

Average returns calculated daily for days when Sensex P/E was >19 (red), between 16-19 (yellow) and < 16 (green). Days which do not have forward returns have not been considered.

The facts/numbers pertaining to PE are derived based on returns generated by Sensex P/E (daily). Source: www.bseindia.com from the period 1st Oct ‘99 to 31st Mar ‘17. The claims based on PE for the period is being used for the first time. There is no indication of projected performance. There is no guarantee that the analysis is flawless and that it will always be accurate in projecting/proving the benefits of investment strategy. Its past performance may or may not sustain in the future. The said analysis is just to make an investor understand the dynamics of the market and to explain that there is no right or wrong time to invest The PE ratio bands (green. yellow and red zones) are the opinions / in-house views of IDFC AMC and have not been verified or certified by independent third party. The returns in above table are CAGR.

 
 
 
 
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