How about inflation? 100 Monetary units in 2008 valued more than 100 Monetary units do today. If price today is the same as in 2008, the value has actually decreased.

If companies have a profit, the price today should show the accrued expected future profits (roughly).

I know you didn't ask about the S&P 500 or the Dow Jones, but I find it very hard to justify today's valuations here in the U.S. as well as worldwide. Having said that, I have felt the global markets have been overvalued-in the classic bubble sense-for over a year now. Yet they have just kept climbing. Why they have (and may continue to) is a mystery to me. Your question is a good one.

@ Bradut you really nailed it...2 yr bank CD's offer 10%/yr, the current inflation rate in India is 6.5%...assuming about 5% over the past five years, my Texas Instruments BAII Plus says 21,000 in 2008 ==26,800 in 2013.

@Tim: Alan G. in a recent book says he's never seen 5 yr bond spreads so high, of course he's the one who said we don't know we're in a bubble until it bursts...didn't Keynes say ,"the markets can stay irrational longer than the investor can stay solvent"...

http://online.wsj.com/news/articles/SB10001424052702304410204579139900796324772

There are a lot of irregularities in the markets nowadays. The mere fact that FED decisions (or speculations prior to FOMC meetings, for instance) significantly impact markets is a sign that the bull market is sustained, but irrational. E.g: Buying a stock like Linkedin at 220 USD per share is at least doubtful at a market capitalization that does not justify, in my opinion, asset covering (it's the effect of a strong bull market). I agree with Pankaj with his mention of Keynes' quote. I believe trends were put in motion outside the rules of a normal market evolution. Therefore, I think a correction is soon in store for all indices (correlated with a strengthening dollar) and the majors will be hit harder.

For Sensex and ORMI analyses, I recommend the work of Mukul Pal, from Orpheus Capitals (http://orpheus.asia/). He is an analyst, a researcher and an acquaintance of mine.

Your question was six months ahead! If it were last Thursday, first you should have sold your longs and then asked this question. Sensex and Nifty have had a deep correction - causes - fear of the real tapering impact, China's falling growth etc. Everything is explained convincingly after the crash but not before! Inflation argument though real, why then allowed the irrational expansion of values of the indices? If international factors determine the indices, then what about the pending elections (in less than 6 months) and India inc rooting for a non-Cong stable Govt?

The question was raised 4 months back and today we find that the markets (particularly SENSEX and NIFTY) are on all time high. Now that more and more surveys giving thumbs up to BJP led NDA a clear majority, can we expect some more high flying in the market? If yes, then what about our fundamental valuations, the EPS, PERatios, Instrinsic Valuations and all that. Are the markets run on sentiments?

Dear Kedar,

Mkts look ahead always - for short term it is sentiments, current news, more negative bias oriented and quarterly/annual results; but for the long term, it is the fundamentals that play an important role - devoid of the short term blips and deep corrections, if you look for the trend, it is always based on the strength of the company's fundamentals. Now Indian mkts are ruled by hopes of a non congress govt. If these hopes materialise, watch my words, mkt would come down! If these hopes are belied also, mkt would come down. because hope is onething, but reality is different - you can understand it better with the Kejriwal example. It is the hope and fear that drive the sentiment, over the short term.

Finally our indices have some more steam left before peaking (pre election) and before correcting (post-election). Let us see,

Dr DR