Market timing – is this the market top?

Experts say don’t time the market, that timing doesn’t matter. What they really want to say is, timing matters, it matters big time, just that it’s near impossible to do so.

The person who gets it right will be able to beat the market. Not even the great Oracle of Omaha, Warren Buffet has been able to do so. There are several instances where he got the timing wrong. Check out Citibank and IBM after he bought the stocks.

So why are we talking about the market top? Isn’t it akin to market timing?

There are certain data points that are screaming for attention. While I can’t say for sure if this is the market top, I believe that the market is closer to a top. The risk reward ratio is certainly not in favor of investing new money.

Here are some of the data points to consider –
1. Almost all experts, on TV as well as in print are bullish. Experts have started throwing out crazy targets for NIFTY and SENSEX. The one thing in their favour is very high liquidity. Here are a couple of links – here and here.

2. People who are not active investors have started showing interest in investing. Fear of losing out is a good indicator of market top.

3. NIFTY is trading at a high price multiple of close to 24. (chart). That means, investors are willing to pay an average of Rs. 24 for ONE Rupee of earnings. Add to that the price to book multiple is over 3.5. Since 2009, only once in 2010 NIFTY was able to maintain a higher price multiple. But the party lasted for just a few months.

Market Timing – NIFTY PE May 2017

4. IPOs are being over subscribed like never before. I don’t have the numbers, but even Reliance Industries may not have been oversubscribed like today’s IPOs like HUDCO and Avenue supermarkets. Two reasons for the oversubscription can be attributed to high liquidity and the ease of investing and the quick turnaround time for refund via ASBA.

5. Earnings growth, quarter after quarter has been disappointing. Analysts expected the earnings growth to pick up a year back. Fast forward a year, and the story still remains the same – expect the earnings to pick up in the next 2-3 quarters.

6. The most important data point is, there is no growth in the loanbooks of banks. Loan uptake has been in low single digits for more than 3 years now. The private sector is not growing, and the government spending will take the economy only so far.

7. Several midcap and small cap mutual funds have stopped accepting new investments. The reason – they do not see value in good companies to invest at current levels.

If I am wrong, I will lose a great opportunity in this bull market, but if I am right, it will save me a ton of capital loss. After all, capital preservation is more important that capital gain.