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Indian Stocks Tips ">New Delhi: Investors always want to know when to start buying in the stock market. Indian investors are largely risk averse and look for timing the stock market. They want to know when prices are low or at the bottom so that they can start buying. However, this is easier said than done. Those who manage money for others (like mutual fund managers, wealth managers) would know the challenges involved. Professionals do not find it easy to do so. This is despite having an access to sophisticated analytical tools. Also Read: Why tumbling Sensex, Nifty could be good news for you What is this stock market bottom and when do you know the market has reached a bottom? A stock market bottom could be in terms of price or valuation. For example, those who track historical price movements of benchmark indices like BSE Sensex and NSE Nifty, suggest a so-called market support or resistance level in absolute value for these indices. This method is used by technical analysts. Sanjeev Bhasin, an independent analyst says that currently, the NSE Nifty has support from buyers at 4925 and resistance from sellers at 5192. The NSE Nifty is currently at around 5000. This means traders would buy in the market at 4925 and sell when Nifty moves to 5192. The other metric used by fundamental analysts is price-to-earnings (PE) ratio. Here again, analysts plot a graph of expected PE ratio of the BSE Sensex or NSE Nifty and decide the peak and the bottom of the market. The value of the BSE Sensex or NSE Nifty is a multiple of the cumulative earnings per share reported by companies that form these indices. Analysts expect an over 10 per cent growth in earnings per share for the BSE Sensex and NSE Nifty companies for the financial year ending 2012-13. Various analysts put the current BSE Sensex earnings per share at 1123. A 10 per cent growth in the EPS over the next year would take the EPS to 1235. The current value of the BSE Sensex is 16612. This means the Sensex is trading at 13.45 times expected earnings per share for 2012-13. According to Ambit, a Mumbai-based firm, the expected price-earnings ratio when plotted over 20 years, shows that the market was cheaper than the current level on very few occasions. The firm argues that the six to twelve months returns have always been positive in the past whenever BSE Sensex fell to the current valuation level of 12-13 times EPS or PE multiple. “Historically, the absolute downside from current level is much lower than the absolute upside,” the brokerage said in a note. The other indicator of the market reaching the bottom is when promoters or controlling shareholders in the company begin to buy their own shares. Reliance Industries, the most valuable company, is running a buyback programme. The company clearly believes that the market is not putting the right price on the stock. On Monday, Tata Sons, the group holding company, picked up 900,000 shares from the open market in Tata Motors, another blue chip index company. Similarly, promoters of Praj Industries, Reliance Broadcast Network, Tips Industries, ISMT and others have picked up shares as they feel their stock is attractively priced. visit: Indian Stocks Tips
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