1. It is a smart strategy to follow the book value of an index and I will take an exape of Indian Index Sensex to explain my view point.
2. Presently Sensex P/BV (Price to Book Value) is hovering near 2.3 and the same is near historic lows of 2-2.4. it has been observed historically with data of past 18 years that whenever the P/BV ratio has drifted near 2, Sensex has given a smart pull back.
3. To further elucidate this point we will take example of Sensex value of 2800 in November 1998 and than P/BV was 2 and with in next 6 months a strong pullback rally of more than 40% was seen which pushed the index to 4000 levels.
4. One can see P/BV value for contemplating the falls also as during last 15 years whenever P/BV ratio has crossed 6.5 which happened recently in January 2008 led to the fall of the market.
2. Presently Sensex P/BV (Price to Book Value) is hovering near 2.3 and the same is near historic lows of 2-2.4. it has been observed historically with data of past 18 years that whenever the P/BV ratio has drifted near 2, Sensex has given a smart pull back.
3. To further elucidate this point we will take example of Sensex value of 2800 in November 1998 and than P/BV was 2 and with in next 6 months a strong pullback rally of more than 40% was seen which pushed the index to 4000 levels.
4. One can see P/BV value for contemplating the falls also as during last 15 years whenever P/BV ratio has crossed 6.5 which happened recently in January 2008 led to the fall of the market.
