|The performance of Indian stock markets has been quite volatile over the last year plus wherein, the benchmark indices Nifty 50 and BSE Sensex have moved in the range of 15300 to 18887 and 51350 to 63285 respectively. |
Currently, these indices are trading around 17550 on the Nifty 50 and 59750 for BSE SensexThough these benchmark indices are trading around 5% lower from all time highs, the broader market has undergone severe price correction over the last year or so wherein, even the best of the companies have seen price damage in the range of 30-50% from their all-time highs.
The reasons for such brutal correction in the broader market are attributed to
* Higher interest rates to control inflation create fears of a recession in Western countries
* The ongoing war between Russia and Ukraine
* Shutting down of China
* Supply chain bottlenecks
The recent research report of Hindenburg for the Adani group of companies added fuel to the fire.
Though the market fall may be attributed to these factors, in my opinion, the higher valuations of Indian stock markets as compared to other emerging markets are causing the damage. During Oct 2022, when Nifty 50 made an all time high of 18887, we were trading almost at a 90% premium to other emerging markets. Historically, this premium is around 40%. The market correction over the last 3-4 months has brought down this premium to around 54%.
* The Indian equity markets have been consolidating over the last sixteen months since Oct 2021 when the markets made a high in the middle of Oct 2021 as part of a sharp up move post covid. Though the markets did make an all time high in Oct 2022, this rally could not get sustained.
* During this consolidation period of around 16 months, the fundamentals of the Indian market have improved quite substantially, to say
* Nifty EPS(Earning per Share) has gone up by 29%
* 12 months trailing PE ratio has come down to 21 from 28
* PB(Price to Book) ratio has come down to 4 from 4.5
* With an estimated EPS of Nifty 50 for FY 24 in the range of 950-1000, the markets are now trading at a PE(Price to Earning) multiple of 17.6, long term average being around 17.5
* The advance-decline ratio of Nifty 50 stocks has reached almost the covid levels of March 2020.
* Historically, stock markets have a strong bull run after a long consolidation period, albeit with volatility. During the period of two years between 2011 to 2013, markets gave no returns with Nifty 50 trading at around 5950. Over the next two years, it gave excellent returns of 41%
* Wiser people have said, investors who sow(read invest) during the period of consolidation of markets reap great returns when the crop(read market) starts growing. As Warren Buffet says, “The number one skill in investing is patience – extreme patience, the stock market is a device to transfer money from the impatient to the patient ones”
* It’s always beneficial to invest through SIP/STP(systematic investment/transfer plan), a case in point is the IT index. During the last year or so, the IT index corrected almost by 30% and recovered 20% thus giving negative returns of 10%. However, investments done in the IT index through SIP mode during the same period have a gain of almost 8-9%.
* The stock market is the only place where people hesitate to buy when the discounts are on big time. Make use of ongoing correction in the market to invest more, preferably through mutual funds. This is definitely not the time to sell.
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