Seriously clueless

India, private equity and more ...

Tuesday, April 04, 2006

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!

91 Comments:

At 4:13 AM, Blogger David said...

Are you referring mainly to the tech sector, or do you see this as an across-the-board phenomenon throughout the economy?

 
At 11:17 AM, Anonymous Anonymous said...

UBS is supposedly the Numero Uno when it comes to equity research and has almost consistently topped Wall St rankings. And, take a look at this article which appeared in the end of 2005. The head of UBS Research, India predicts that the sensex will touch 8700 by 2006 end. How do u rate that for a prediction from a supposed expert in the stock market?? :-)))


http://www.blonnet.com/2005/11/15/stories/2005111502891500.htm

(PS: Sorry to malign your previous profession, but equity research is the BIGGEST FARCE as a profession)

 
At 11:24 AM, Anonymous Anonymous said...

the link is cut in the previous post. the last part of the link after "/stories" is


"/2005111502891500.htm"

 
At 8:50 PM, Blogger Sandeep Meher said...

and santabanta.com is planning an ipo :-[

 
At 11:05 AM, Blogger Manish Bhatt said...

So enlighten a finance illiterate. Is it a bad time to invest in Mutual Funds? What is the best investment in these times?

 
At 12:37 PM, Blogger Falstaff said...

Dude, you so need to go to more exciting parties. :-).

FWIW, I'm certain the stockmarket is way overvalued too. I would worry, except that I've already effectively shorted the market by having no money to invest in the first place. So long, suckers. *evil laugh*

 
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