Investment Shastra

Nifty@MRP Trends Lower, What Should Investors Do?

Sensex@MRP updated performance

What is Nifty@MRP?

As investors, we constantly track the Nifty movements. To make investing more profitable and not a game of mere chance, we need a solution, a solution which could help us identify whether the market is grossly depressed or irrationally exuberant. This is exactly what Nifty @ MRP is for!

What is the latest value of Nifty@MRP?

Nifty@MRP Dec 15For Dec’15, considering the free float market capitalization at the MRP of individual stocks and the share price data as of 18th Mar, the Nifty@MRP is at 8297. On 18th Mar, NSE Nifty index closed at 7604, which is ~9% or 693 points below the Nifty@MRP. It indicates that the index is undervalued.

Sensex@MRP Dec 15On similar lines, the Sensex@MRP value is at 27766. On 18th March, the Sensex closed at 24953, which is about 11% or 2813 points below Sensex@MRP.

Future Outlook

After a strong correction in Feb 16, Indian markets have rebounded sharply in Mar 16, mainly on the back of FII inflows. In fact, markets across the world seem to have bounced back as both oil and other commodity prices are off their historical lows. However, global economic cues remain volatile, with higher risks on the downside. Below we share our insights on global economies, to help you gauge the future:

Advanced Economies

The US remains a mixed bag. Strengthening labour and housing markets are making the economy resilient. Domestic consumer spending is on the rise with the economy generating rapid job growth. However, strong dollar is adversely impacting manufacturing sector and low oil prices continue to curtail investments in mining and infrastructure sector.

Private consumption led by low oil prices and easy liquidity will stabilize Europe to a certain extent. However, weakening net exports continue to remain a drag.

Japan has failed to return to a sustainable growth era, even after three years of Abenomics. Deflation continues to remain a threat. A stronger Yen and subdued export demand are already dragging the economy down.

Emerging Economies

Weak Chinese manufacturing data, with a faster-than-expected slowdown in imports and exports, reflects the weak investment and manufacturing scenario, increasing the slowdown expectations.

Latin America and Caribbean economies are contracting resulting in recession in Brazil and other economies.

Middle East is plagued with low oil prices and the resulting geopolitical tensions and domestic strife.

India looks poised for a strong growth. The recent budget has reinforced belief in the government with fiscal prudence being maintained and stressed focus on agriculture and infrastructure development.

To summarize the economic scenario in the world, India is bound for a strong growth, the US will also see relatively stronger growth, Japan and Europe will continue to disappoint with slow growth, China too will slowdown and there will remain weakness in many other emerging markets.

MoneyWorks4me Verdict

Markets were expecting earnings growth to recover in the past year. However, companies across sectors continue to report depressed EPS and margins. This is due to lower utilization and stressed balance sheets.Recent budget gives us hopes that the government is committed to the development agenda. However, we do not expect earnings growth to resume for the next 2-3 quarters.

Despite this, the reason for us believing that the fair value of Nifty (i.e. Nifty@MRP) is higher than current valuations is because our MRP is based on growth for the next five years and not just one year forward like the rest of the market.

Earnings recovery will be a major positive trigger for the market. Good monsoon will be another trigger.

However, the downside risks remain very high. And we may see correction, just like the one we saw in February.

However, we believe Investors should continue buying quality stocks at a sufficient margin of safety. Market correct now and then, thereby creating opportunity. High uncertainty across the globe spells good news for value investors like us, as it gives us an opportunity to buy quality stocks at cheap price.

We also advise investors to hold some part of their portfolio in cash, which will help them invest when the opportunity arises.

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2 comments

  • Hi Team, thanks for the article it is very interesting and informative however could you please explain what exactly is Nifty@MRP and how is the value derived? The above article only states how useful it is but not what exactly it is.

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