What if we run out of fools?
The Indian stockmarket is going berserk. There's a Sergei-Bubka-type phenomenon of setting new records & breaking the same the very next day. While I broadly think India's going places and all that, the stockmarkets have gotten way ahead of fundamentals. Here are my top 5 signs that the Indian markets are overvalued:
1. Equity analysts are justifying valuations on the basis of FY08 and FY09 earnings multiples. Companies havent even declared FY06 results and for most Indian companies, FY07 numbers are wild-guesses at best. I've seen reports that say '25x FY08 earnings sounds reasonable' with a straight-face!
2. Every report that I read in Jan 06 showed year-end estimates for the Sensex at under 11,000. The authors of these reports dont seem overly worried that we've reached the 12-month target in 3 months.
3. Mutual fund branding has reached ludicrous levels. Tiger, Lion, Hi-Fi, Future Leaders are all names of new mutual funds. Advertising for these funds draw analogies to Birbal's wisdom and building the Taj Mahal!
4. Pre-revenue startups are hiring investment bankers to raise venture capital.
5. One out of 3 people I met at a party last week had raised an India-fund in the last 3 months.
The greater fool theory is being played out right now, as each investor hopes to find a sucker who'll buy the same shit at a higher price. What if we run out of fools? I guess that's never happened in the history of civilization!