“Majority of stocks trade below 2008 valuation.” says Analysts.
Thus screamed the evening editions of Economic Times.
All of this led me to hurriedly open the charts of prominent counters in 2008 and the first of them was Nifty Future chart. I compared the low point of Nifty, i.e., around 2250 with the current valuation, i.e., 5472. It is clear from the analysis that the Nifty is in a far better position than it was in 2008 but the comparison started and ended with Nifty abruptly as other counters, both mid and small caps which are not part of Nifty were compared with 2008 rates and the rates which were in accordance with the statements of the headline.
In a flash the light dawned on the great deception and manipulation of the markets whereby Nifty was managed in a comfortable zone thus making people believe that economy was in a far better shape than in 2008 whereas the real blood bath/ bleeding took place in medium and small counters which follow the bulk of the capitalization of the markets as the rates were slowly and steadily pushed even below the low rates attained in October 2008 which was termed as “Year of the Bear”.
It is clear that the bear has again risen from its hiding place to maul the markets although it has become much smarter and has created a mirage by drawing the attention of the people to a select group of shares while decimating the majority of the market through its bear hug. Thus, we can safely say that we are in a far worse position than what we were in 2008 although nobody is willing to declare it as such, keeping in view the political and financial exigencies and therefore keeping people in dark to the true and real state of the markets.
However, there have been other pointers which have clearly indicated the poor health of the economy of which the Stock Market is a barometer i.e.
1. Drying up of FDI
2. Steep and sudden fall in the value of Rupee against Dollar
3. Non-softening of interest rates even though the world was awashed in liquidity & interest rates elsewhere were low due to successive QE programs of the Federal Reserve
4. Pull out of many reputed foreign companies from Indian Markets
P.S. Its belatedly now acknowledged by the Government of India that we are in an economic downturn and are facing economic difficulties, a classical case of “Locking the barn after the horse has bolted.”
It’s clear from the political compulsions of the Government with impending elections next year and more so ever with the tendency of economists to remain behind the curve that a bear market declaration is not in the offing although actually we are in the worst bear market than in 2008, so it would be advisable to take all the necessary precautions and consequent action as if we are in a bear market and modify/align our investment decisions accordingly and not be misled by the declaration that everything is going to be all right and it is simply a blip in the economy as made out by the officials of the North Block as they would let us to believe.
It’s better to stay liquid and in cash and wait for the bottoming out of the market which would present even better opportunities to maximize the returns.
CA Final Student