In recent times we have achieved almost a new high on Nifty and now bears, pessimists are talking about “Overvaluation of stocks” but that ain’t what statistics are saying. Nifty surely has given a strong upmove but many of the stocks have yet not performed at all. Nifty is just 4.9% below life high of 9119 but look at the stock performances of all Nifty stocks in attached file: Nifty_Stocks ! If you compare performances respect to Nifty, only 15 stocks out of currently 51 stocks are performing better than nifty compared to respective life-highs. So understanding with a plain vanilla logic , there is way more to go on stock specific trading.
Now lets talk about market-cap of Nifty which is currently trading $1.63mln which is way lower than 2008 high which was at approx $1.83mln which means index has crossed 2008 high in terms of absolute value but not yet in terms of market-cap valuation. Check out the graph below:
In above graph i have compared Nifty (Yellow Line), USD/INR (Pink line) and Market-cap (Blue line). Red marked boxes are the event when nifty has topped. During such period of time we often have stronger rupee vs USD and market-cap is way above Nifty on relative terms. Green market boxes are times when rupee is the weakest and Nifty hammers a low and initiate a new rally. So keeping other factors constant, currently we have hammered low for time being and new rally has been triggered. Strengthening rupee is the best sign of strengthening equity markets.
So to conclude, we are going to get the best time of our trading period in coming months but the strategy should be stock specific as we noticed that we have many under-performing stocks. And yes we dont need to search for stocks out of Index because these stocks would also give you best returns. So stay with the best. Though always hedge your positions in option markets.