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The Dials:

RBI Repo Rate: Interest Rate at which the RBI lends money to banks. A key determinant of the cost of money in India.

RoE: Return on Equity. A measure of the capital efficiency of a business. Net Profit/ Net Worth expressed as a percentage. The number mentioned is the weighted average for Indian companies in the Nifty 50 Index.

PE Ratio
:Price to Earnings Ratio. Price Per Share/ Earning Per Share. The number mentioned is the weighted average for Indian companies in the Nifty 50 Index.

Dividend Yield: The dividend per share/ Price Per share expressed as a percentage. The number mentioned is the weighted average for Indian companies in the Nifty 50 Index.



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Author - Bhavya Jain
Fear Greed Index from 31 Dec 2009 to February 2013
Fear Greed Index from 31 Dec 2009 to February 2013

Posted On 11 Feb 2013

Presented below is a visual representation of the Fear Greed Index (FGI) Level and corresponding 1 year returns of S&P CNX Nifty index from 31 Dec 2009 to 4 February 2013.

The Fear Greed Index values are plotted against the left Y-axis and corresponding 1 year returns are plotted against the right Y-axis. The X-axis is the date axis starting from 31 Dec 2009.

As can be seen in the graph above, the Fear Greed Index peaked in this current series (from 31 Dec 2009 to 4 Feb 1013) at a level of 75.54 on 13-Oct-2010. The corresponding returns at this level one year from that date are a horrific loss of 18.54%.

The FGI bottomed at 38.9 on 20 Dec 2011 and the corresponding returns from this level was a juicy 30.2%.

Highest 10 FGI observations

Date

Nifty Close

FGI

1 year fwd return

13-Oct-10

6,234

75.54

-18.54%

5-Nov-10

6,312

75.50

-16.29%

9-Nov-10

6,302

75.36

-17.29%

4-Nov-10

6,282

75.13

-15.88%

6-Oct-10

6,186

74.96

-23.20%

10-Nov-10

6,276

74.86

-16.95%

8-Nov-10

6,273

74.84

-15.68%

14-Oct-10

6,177

74.73

-16.92%

1-Oct-10

6,143

74.70

-21.06%

4-Oct-10

6,159

74.53

-22.52%

 

Lowest 10 FGI observations

Date

Nifty Close

FGI

1 year fwd return

23-Nov-11

4,706

41.66

19.55%

23-Dec-11

4,714

41.65

24.05%

28-Dec-11

4,706

41.59

25.55%

21-Dec-11

4,693

41.30

24.60%

16-Dec-11

4,652

40.70

26.40%

29-Dec-11

4,646

40.61

27.16%

2-Jan-12

4,637

40.38

29.26%

30-Dec-11

4,624

40.24

27.77%

19-Dec-11

4,613

39.94

28.54%

20-Dec-11

4,544

38.88

30.20%

At the end of 2009, investors were overly optimistic driving market valuations to levels where future returns were destined to be disappointing. At the end of 2010, markets were in the fear zone and contrarian investors were rewarded with excellent returns.

Through millennia of human history we have witnessed remarkable changes in the world around us. However, one thing has proved resistant to change, and that is human psychology. With this in mind, we can better understand that the stock market will always swing between optimism and pessimism.  Greed and Fear are the inherent feature of stock markets, given that the market is itself is a collective mechanism for predicting and discounting the future.

It is also worthwhile to note that we are not providing an explanation or reasons why the markets have moved from a FGI level of 70 to 40, all that matters is where the FGI level currently resides. If we start paying undue attention to breathless news channels or sensational headlines, we are at risk of falling prey to the emotions of greed and fear: a deadly outcome. Investing in markets is ultimately not about mathematical or financial wizardry, what is required is emotional fortitude. One must have the ability to keep their heads about them when everyone is losing theirs. From an evolutionary perspective, we are not designed to stand apart from the crowd. However in the context of the Stock market performance this is exactly what one must do. Chasing a market when prices have been bid up to unreasonable levels, or being shell shocked and unable to pull the buy trigger when there is a panic are the opposite of what produces good investment returns.

As of this writing, the Fear Greed Index is at a level of 50, placing the market squarely in the fair value zone. The 1 year expected return from this level is between -18% to +50%. Also, please note that the time frame over which the FGI produces usable data is at minimum 1 year, shorter term price movements are wholly random and we have no way of estimating the market performance for periods shorter than 1 year. Therefore the FGI is likely to be useful for investors with a long term orientation and not day traders.

In the months and years ahead, we are committed to providing the Fear Greed Index to you, so that you may calibrate your expectations and avoid the deadly sin of losing capital. Our motivation for creating this Index has been to share our learning with the world based our belief that knowledge grows through sharing. It is for this reason that site has no pay walls. All we request is that you cite our work if you use this information.



Author -
FGI Frequency
FGI Frequency

Posted On 05 Aug 2011

This is a histogram which represents the frequency distribution of the FGI. The data represented is taken from 1st Jan 1999 till 1st July 2011. For example, here we see that for 14% of the data set the FGI is between 65 and 70.

Author -
FGI Line Graph
FGI Line Graph

Posted On 27 Jul 2011

In this comparative line graph the FGI is represented by the black line and the one year forward return of the nifty is represented by the red line. The mirror image created (although not perfectly so) implies a negative correlation between the two.  The higher the FGI the lower the returns and vice versa.

Author -
FGI Scatter Graph
FGI Scatter Graph

Posted On 27 Jul 2011

In this graph the FGI is plotted on the vertical axis and one year forward returns of the nifty are plotted on the horizontal axis. This set of data points are taken from 1st Jan 1999 till 1st July 2011. The pattern of dots slopes from the top left to the bottom right, thus suggesting a negative correlation. In other words, this graph shows that higher the FGI the lower the expected one year forward returns.