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Dead Cat Bounce


The Sensex closed above 13,500 and the Nifty near 4100 today. Things seem to look good, and suddenly you will start getting calls from brokerage houses and see news of the Sensex on the front page.

Had you stopped looking at the markets for a long time and suddenly found the interest again? Don’t bother. If you’re looking for another place to sell stocks, this may be your chance. The Nifty P/E is still 17+, and (shudder) EPS is CONTRACTING. Means forget growth, we’re struggling to just keep even dammit.

The current Nifty EPS is 233. This is even lower than it was in May – because of bad results. And not just Q4 08, we are seeing horrendous results in Q1 09. The IT biggies have done their thing, and still the EPS hasn’t bumped up. What’s it going to take to grow 20%? LEt’s see- End August 07, the Nifty EPS was 220. That means to go till there we need to be at 264 by end august. Heck, just to justify P/E we need to be at 256 (16% EPS growth, 16% P/E)

With most companies yet to declare results, and potentially one or two huge losses coming from the likes of BPCL, it’s looking very difficult. Let’s see how it goes – and remember, all that matters is EPS growth. It’s not revenues, or income, or profit. It’s EPS that matters.

(For traders of course, even that doesn’t matter. Only price. Which works for me – we’ve consistently been doing well the last few weeks; systems are now working to our advantage. We’re slightly down this month; a system couldn’t handle the volatility and we had to throw it out after some underperformance. But the remaining ones have actually done very well in these times.)

As much as I would like it to move much further I don’t have too many hopes going forward. This is a typical fierce bear market rally, which could last a while or just a few days – but volumes suggest there are fresh bakras being herded in and that someone’s going to get [more] hurt. But such are the markets. Gotta keep it interesting.

I’m happy being bored to death waiting for my little program to say “Buy X amount of this” and “Sell X amount of that”. Bored is better than broke.


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