A couple of weeks back, someone told me – markets are crashing, and it is a good time to invest. This is what I had replied, “This is not a crash, when it crashes, you won’t be able to look at the screen. If you are looking at the screen with any excitement, then don’t call it a crash”.

Looking at the market mood index chart and checking the fear and greed index can help you get insights into market behavior. Readings that are too high or too low often indicate overvalued or undervalued markets.

Where are we now – We are still expensive.”

If you look at the 10-year average Price to Earnings (PE) multiple on the Nifty, you will find it skewed because in March 2021, the methodology was changed, and we started using consolidated earnings instead of standalone in PE calculation. That said, we are currently trading at a trailing Price to Earnings Multiple of – 20.

This means that we are trading cheaper than we have evern since the change of methodology in April 2021. In my view, this is still about 6% more expensive than the market’s fair value. But that’s not the point I am making. The point is this – if markets fall another 6%, it may still not be the best time to buy.

I am sure you have heard enough and more about fair valuations, but have you ever thought about this – markets hardly ever trade at fair valuations. They trade either higher (or much higher), or lower (or much lower) than their fair valuation. The easiest way to make money in the market is to buy below the market’s historic fair valuations and just hold on.

The hardest thing to do is to avoid buying stocks when markets keep moving higher and higher. Think about it, nobody looked at valuations about 6 months back when markets were trading at insane valuations! 

Here’s what financial advisors are supposed to do – they should tell you if today is a good day to buy or sell stocks. If you are holding nothing in fixed income, it’s a good day to sell stocks. If you have 60% in fixed income, buy stocks. It’s about allocations. It’s Simple!

— Rajat Sharma (@SanaSecurities) April 7, 2025

This is where the concept of market mood index or fear and greed index becomes relevant. It is a score ranging between 0 to 100, where 0 indicates extreme fear and 100 indicates extreme greed. In order to make the right investment decisions, you must know when to be fearful and when to be greedy.

Why should you be fearful?

You should be fearful because right now, markets are falling for all the known reasons;, it’s almost like a man-made disaster – Donald Trump’s tariff plan. This is also the reason why the current fear and greed index seems to indicate extreme fear. Be fearful of the fact that markets can start falling for something thatwhich is so far unknown.

Imagine that in the current backdrop, the Russia-Ukraine war escalates or that China decides to annex Taiwan, or if something happens to the sea water in the Atlantic and it turns poisonous. The world is full of possibilities.

In any such scenario, the PE Multiple can fall from 20 to 16 within a week. So, can the markets fall another 20% from here? – Of Course they can. Are you prepared for it?

Why should you be greedy?

Be greedy not because markets are falling;, in fact, as I said, markets are still expensive. If at all, you should be greedy about stocks where people are fearful, i.e. look for stocks where the stock fear and greed index is low.. Where do you find people being fearful? I would say it is in 2 sectors:, those impacted by Trump’s tariffs– Auto and technology.

In a few months, you would look back and wonder why you did not buy Tata Motors when it was available under 5X its earnings (Current Market Price – 542. Yes, the current PE Multiple of Tata Motors is 4.9! Then there is Infosys (Current market price – 1323), trading at a current dividend yield of 3.1% (it’s a technology company thatwhich is supposed to grow its earnings much faster than the rest).

I’ll tell you a secret today.

I have made more money buying undervalued Blue-Chip Stocks than I have buying small and mid-caps, even though some of my small cap picks are over 10X. It is one of the easiest things to do, to multiply wealth in Blue chips, all it takes is waiting.

None of what I am saying is with the benefit of hindsight;, all the stocks I purchased over the past 5 years, like Lupin, Hero Moto, ITC, and Sun Pharma, were all publicly disclosed as my largest holdings. Not just that, all the stocks I am betting on now are also publicly disclosed, here you go – Asian paints, HDFC, Tata Motors, Infosys.

A reasonable person with a normal IQ can tell you which stocks to buy. The difficult part is to get your allocation right, not in stocks but across asset classes. It is about being prepared for a further correction when everyone knows that markets are very cheap. It is about never buying more than you should. It is about principles and about rightly analyzing the market mood index or fear greed index. Here are a few tips you can consider:

• Don’t leverage
• Hold 20% in fixed income even when the market hits a lower circuit
• All (core) sectors are good sectors;, the value at which you buy is what matters
• Have a diversification strategy.

For years, I did not understand how the smartest of investors end up buying stocks at prices far more expensive than what they are worth. Then I figured, there is a reason that they have amassed such vast wealth. They don’t go all out with their buying;, it’s all about allocation, it’s about diversification!

Remember, there are always stocks and sectors that will outperform the broader markets going forward. Being under-owned on equity is far riskier than being over-owned when trying to create alpha.

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Rajat Sharma

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