Sensex at a 20% discount to Sensex@MRP. Buying opportunities on the rise.

Sensex@MRP gives you an indication of whether the Sensex is fairly valued or whether irrationality is driving the markets. It is the intrinsic value of Sensex determined primarily by the earnings of the Sensex companies. So, the logic here is, if Sensex goes above Sensex@MRP, it signals that the market is moving from being rational to being irrational. It means you have to become cautious because if it continues to rise further, this rise is not justified by increase in earnings; it would thus be time to start selling off.

It’s been a year to forget for the Indian stock markets. Since the 20,000 level seen in Dec-2010, Sensex has dropped more than 4000 points to reach close to 16,000 over the last 12 months. A plethora of factors have been responsible for this. Be it global fears of the European debt crisis deteriorating further, the US credit rating downgrade, the rupee taking a beating or the domestic problems of high inflation and interest rates along with a government handicapped with corruption allegations and policy paralysis, nothing seems to have gone right for the stock markets.

So with the backdrop of these concerns, how did the Sensex companies perform on the earnings side for the September quarter? Have the earnings been hit badly during the quarter? And most importantly what action should you take considering the Sensex@MRP?

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