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Why I am Bearish Long Term on the Nifty?

First and foremost the Nifty is way overvalued at current levels with a trailing P/E in excess of 23. Have a look at Sanjay Jaiswal's comprehensive P/E computation below at Niftypulse. This makes the market way overvalued on an earnings yield basis:


Nifty P/E Ratio

Date

P/E

8/7/15

23.18

7/7/15

23.59

6/7/15

23.62

5/7/15

23.52

2/7/15

23.40

Next FII interest in the Indian market has been declining steadily over the last 3 years. Here is some data from Traderscockpit:


Yearly FII Purchases/ Sales (INR 10 Million):

Date

Gross Purchase

Gross Sales

Net Purchases/Sales

2015

651299.9

631312.0

19987.861

2014

1001752.4

928095.94

73656.42

2013

758407.75

671048.94

87358.79

2012

633960.4

532794.25

101166.11

A continuation of this trend could eventually weaken the Rupee significantly and destabilize the macro economic back drop in India.

USD/INR (USDINR=X)

Thirdly Indian market volatility is on the rise. However on the most recent bounce in the market it declined below US market volatility which suggests complacency and a large decline ahead in the mark. See the graphic below from Vix.co.in for a rounding bottom type pattern emerging in the India Vix which is bearish for the market in the long term:


Larger Image

Last but not the least the Chinese authorities seem to have lost control of their market which has resulted in a free fall. Contagion risk to other BRIC countries like India is likely:

iShares Trust - iShares China Large-Cap ETF (FXI)

 

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