A few days ago the calculator king Mr. Pattabhiraman (of www.freefincal.com fame) did a post that Nifty could reach 10,000 in 12 months time, but it may not sustain.

I have no views of the market indices. In fact my broker and me keep looking at the market eps and market pe just to see the trend.

Fundamentally speaking I do not like the construction and the Nifty, so my benchmarks are NEVER these 2 indices – for example when I see my wife’s portfolio over a pretty long period it has beaten the index. My mother’s portfolio and my wife’s portfolio are in the growth mode – there is no withdrawal at all. So the better index to compare would be some kind of a multi cap TRI and not really the sensex / nifty.

What is the big problem with the Indian indices. They are both Market cap free float indices – as is what many indices in the world are. However when the market cap of the big psus are considered their MARKET CAP on full share capital is considered even though only a very small fraction of the company is really liquid. That is bias number ONE. It distorts.

When one owner controls such a huge chunk, the chances of insider trading / price manipulation are high.

So the big companies like Coal India, Ongc, OMCs, Ntpc, Nhpc, dominate the market. Reliance too is an energy player. WE have domination of the energy space in the indices.

Now comes the tough part. Energy is like any other commodity. It has its cycles – high for a short time and lows for long time. The companies have to make a LOT OF MONEY during the price peaks (profiteering is a dirty word for the commies who run our bureaucracy) so that they can handle the downside when prices are low. Our great government will NOT ALLOW THIS…when prices come down these companies will be told that they have to price as per market, but when prices go up, THEY WILL HAVE TO SURRENDER the gains to the consumer. Look at the E-auction of Coal India.

So an index which is manipulated so badly cannot really be a great benchmark. And I do not see the Sensex EPS going up too much – thanks to the commodity (energy) domination. You will all be able to beat the index  – for me that has never been the aim.

Every portfolio should be a combination of wealth creation, have enough liquidity, MEET INVESTMENT GOALS, and outlive the investor.

Beyond that, if it beats the market, it is just catering to the ego of the manager. Ignore the kick.

Remember, 10,000 is just a number, EPS is manipulated (legitimately by the government, illegitimately by the people running the companies), and PE ratio is a ‘feeling’. Ignore the 10k. Just invest.

 

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  1. I am a regular reader of your posts. Since the post is on index, whats your view on S&P 500 or Total stock markets index funds? You think its same as that of Nifty? Share your opinion if you can.

  2. What about beating the Best performing fund in Last 5/3 years. Is it not gud benchmark to check our portfolio performance

  3. Hi,

    Index expert Mr.Amit referred you as his guru. Yesterday, I had attended his training and decided to check out his guru as well. I was interested in equity and so i read the first article I could find in your site. You have said something about PSU weightages. When I checked, the top weighted PSU in NIFTY – SBI had a weightage of 3.44% on a FREE FLOAT MCAP of 96397 cr. The full market cap of SBI is 244,000 crores. Hope you can enlighten me on this, becoz your pupil ( index expert) Mr.Amit couldnt!

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