The Nifty Earnings Per Share (EPS) Growth – as revealed by the National Stock Exchange – is slowing.

We are again diverging from the P/E which has now crossed 19.

If you think that looking at one year is bad, then let’s see longer terms. EPS Growth of the Nifty, annualized for:

1 year: 7.37%

2 years: 9.5%

3 years: 10.0%

4 years: 4.6%

5 years: 6.2%

7 years: 10.0%

These are not figures that warrant a 19 P/E, to be honest. Don’t get me wrong, 10% or 8% are good growth rates. But when you pay a P/E of 15-21, you would expect more, one thinks.

The Nifty crossing the 200 Day Moving Average today, ending at 5,236 and breaking back up after exactly 9 months (the cross-under was May 1, 2011). Maybe it was a pregnant bear market.

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Even the technical chart shows that we are at an inflexion point:

The current level is just about where the action has reversed in the recent past (though we have seen one move in October go all the way to the 5400 levels before coming back).

The MACD shows some leveling out from this point, with the downside crossover looking imminent. It’s just quite likely the upmove consolidates here before making the next move – up or down. A call spread above 5400 would be nice, but prices right now aren’t too exciting at Rs. 48 for the 5400 call. But that would be the trade, at this point – write the 5400 call, buy the 5500 or 5600 call, if the pricing gets attractive. 

The 12.4% return on the Nifty in January is an incredible start to the year, and the best return of the last 30months.

As you can see, the number of double digit positive months are way too few, with two in 2007 and 2009 and one in 2007. This is also the second highest January return for the Nifty ever, since 1994 (and there wasn’t much trading on the NSE then).

The Sensex has a lower return of 11.2%.

Wonder what Feb will bring!

And to continue with the 2011InCharts theme, we have the market snapshot since the highs of 2008:

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We're at a 16.75 P/E and near recent lows - and below both long-term moving averages. Sectors in 2011:

Rea; estate was destroyed by over half; infrastructure by 39%. Banks and Midcaps were down over 30%, and the only sector that looked good was FMCG, up 8.4%. A bad year for everyone except those selling soap and toothpaste!

The great monthly chart shows Nifty and Sensex Monthly Returns since, well, since a long long time. December, despite historically being a great month, went down -4.3%.

That means we have had 9 losing months in the year - the only three positive months were March (+9%), June (+1.6%) and October (+7.8%). It has been a hugely volatile year.

2011 was the second worst year since the NSE was started, with -25% on the index. It was second only to 2008 which was twice as worse, with a -52% return.

2011 had the dollar falling nearly 17% so the net return, in dollar terms, is -42%.

The Sensex too has had the second worst year ever:

Annual Nifty Returns

The last 10 years have mostly been positive; before 2008's debacle, the worst year was 2001 with -16.2%.

(This is part of my "2011InCharts" package which I'm preparing over the next few weeks)

A quick post about how the markets have done over the last few days, in both reaching a two year low (lowest since August 2009) and then doing a 4% recovery over two days.

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The slope of the 50 and 200 DMA are now down and it looks like the index is headed downwards. Strong technical support exists at 4,500 but nowadays strong is a relative word; news flow can be much stronger.

Market Capitalization to GDP isn’t really a comparable figure, since one is a measure of wealth and the other dynamic measure of transactions in a year. Yet, it’s useful to see valuations in comparison with where they were earlier.

(GDP figures from RBI quarterly database, Marketcap from NSE/BSE)

We are at levels last seen in 2008, and earlier, in 2005. Note that in the earlier bubble – 1999-2000 – we were at less than 60% of GDP. Much of India Inc. has listed in the last decade, so it’s not very surprising. It does show though, that 60% is not uncharted territory.

The market went down last week on some bad news from Europe, the bad local news and in general, the lack of any good news whatsoever. The Nifty ended down 3.6% at 4866, bouncing back below the 50 Day moving average and going to a P/E below 18 once again.

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Now consider that four years ago, in December 2007, we were at 5900 pm on the Nifty and now we are 20% lower. The Five Year CAGR is under 5% now. And the European drama isn’t over yet. Brace yourself for more volatility.

I had earlier provided a chart of the Nifty since 2000, adjusted for inflation, including dividends and without.

A cleaner way to look at the index is to “adjust down” for inflation every month (using a monthly index). I have assumed about 9.5% for November and 9% for December (we only have WPI monthly data till October).

We are effectively at the lowest levels since April 2009. (If you recall,the index shot up 15% in May after the elections).

More importantly, look at the dead zone between May 1994 to May 2004 – net of inflation, you earned nothing (in fact inflation adjusted returns were negative till October 2004).

Worse: In the 17 year period that the Nifty has existed, the return, net of inflation, is 55%. The long term return of the Nifty, net of inflation, is 2.6%.

Those retirement plans that assume 15% equity returns need some rethinking.

What a week. Wiped out much of the losses in November in the last two days in a rise that was almost vertical.

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The Nifty is now just above it’s 50 Day Moving Average. The bigger resistance is the 200 day moving average.The month of November saw a 11% drop, of which more than half has been retraced already.

In four years now, the Nifty has gone down about 1,000 points, from near 6,000 to the 5,000 levels today. That’s a four year negative return, not counting inflation.