Two days ago on CNBC, my fellow guest was saying: the world is very upbeat on India, investors are willing to pay higher valuations for stocks, therefore a higher valuation will soon become "the new Normal".
We hear a lot of buy side advice from investment bankers in all kinds of forums. I rarely hear an expert talk about a more reasonable valuation. The Nifty is trading at 23 PE. Now, who decided that this is reasonable? Historical values are much lower. Given the revulsion towards investment bankers, it is possible that their high flying values may also become unacceptable.
Our friends, cleverly link the growth in the Indian economy with higher valuations. They give the impression that people must accept higher and higher valuations since the economy is on fine footing. Sure. The economy is on fine footing thanks to the hard work of 120 crore people. I often think that the economy is in good shape inspite of the financial terror that the financial professionals unleash!
So, we are all hearing the buy-side advice. But we should understand the other side of the argument. Ignorance is not bliss.