I did value SENSEX a while ago in my blog. I pegged it at around 32k. But since then many of the metrics I used have changed. I might do a recap of that post again. Let’s see.
In any case, like I said, massive sell offs are fuelled by fear. No amount of fundamentals will explain the anamoly.
Why do you think markets all over are so fixated on yield curve, the difference between 10 year bond and 3 month bond. What is the historic yield curve and current yield curve on Indian 10 year and 3 months bond ?
Every recession since the 1950s has been preceded by a curve inversion.
Anyway I don’t wish to add more into this. You have made up your mind on interest rates having negligible or zero effect on value of assets
Once again you haven’t completely read what I’ve written. You are attempting to explain the drop this way:
I’m trying to explain it this way:
Thats ok , I dont with to add anything more as it wont benefit me in any way actually coming to think of it other than costing time. I am sure you are of the same opinion
Very true. All sort of expensive stocks are losing their flab. It’s high time.
Last year bulk of the activity was in the Investing as a full-time career thread. This year bulk of the activity is in the carnage thread. How quickly things change.
I think it’s time we get back to micro and post in individual companies’ threads about business fundamentals and valuations and see which good businesses are going to be available for bargains. I envied people who claimed to have bought some good micro/small caps at 10 P/E in 2013 because everything I wanted to buy then, that I thought were good businesses (last year and early this year) was insanely overpriced. Now most have come to very interesting levels to nibble on. Some midcaps and largecaps are not yet there but am certain will be there in the next few weeks. This time probably a portfolio can be built without any compromise on business quality because valuations are going to be much better.
It’s a good suggestion. A
Yeah that’s a very good suggestion. Please also enlighten us if you find any. I will also start searching for the same.
yeah,may be equity is only for wannabe Buffets and Mungers. Rest should just do FDs.
BTW, it was my own macro call that I went 40% into cash during Jan - March period. I am kicking myself for not selling some others too. This is the second time I have saved a part of my PF. India is not a mature economy like US. We have volatile movements in different parts of economy and if somebody wants to own other than 10-15 evergreen stocks, one has to be aware of macro. WB makes 40-50% in few years but their followers here lose the same in few months here.
If you can predict macro with reasonable success, you may soon surpass Buffett & Munger in fame. Please don’t forget us mortals on the way up!
There is lot to learn from WB and CM but I don’t idolize them since most of it is not applicable in India yet. The idea was not to show off my skills but to tell you that a small guy like me can use macros to save PF.
I have never mentioned anything about WB/CM (except in response to your post mentioning them), my only point was that if one might need the money in 3-4 years, they probably shouldn’t invest it in equities. Anyway, the conversation is going off-track, so all the best!
My 2 cents on current market carnage…
This is what p/e de-rating does. 30 p/e at 20% growth suddenly becomes 15-20 p/e at 20% growth.
As per Fisher, p/e is a blend of three separate appraisals…
Even with growth prospects of industry and company remaining unchanged, given stock might correct due to change in perception of the overall market and macros…i.e. part of p/e owing to attractiveness of mkt as whole might disappear…this is more or less owing to sentiments…
In my opinion -
We all commit mistakes. Key is indentifying them early, learning from them, and moving ahead. Try minimizing number of errors as you move forward in your investment journey. Everything gets hit in carnage but quality with sectoral tailwinds would be the first to rise again. Being invested in quality in wrong sector could be bad unless one has very long term investment horizon (subjective, i know).
This is the most crucial thing I guess if anyone wants to ride on the next bull run. So can we have a seperate discussion thread on this ?
To name a few:
PS: Pls feel free remove this, if its off-topic.
50% of stocks traded on NSE are down 50% or more from their 52 week highs
The index is not exactly reflecting the pain. I remember the article from nooreshtech, “in 2013, the indices were bullish, but the broader market, smallcap & midcap were bearish.”
Bull & Bear Markets in US:
Sorry, Dinesh, just to comment on this - fully onboard that CAPM / DCF is not the way to explain market caps but it is incorrect to say interest rates have no impact on stock prices, they have a massive impact due to the way in which they skew the risk reward trade off when large institutional investors think of portfolio allocations. The entire market move yesterday was prompted by a spike in US 10Y yields. Risk premium do not contract when the risk free rate increases - risk premiums are fixed spreads above the risk free rate that capture the quantum of risk relative to what is considered the safest risk (not risk free, just the safest risk to take) - since the safest risk is the benchmark by which other risks are measured, it follows that an increase in baseline risk cannot decrease risks benchmarked to it. What happens if the risk free rate rises is that the overall spread needs to increase to the previous level to justify the investment - if it doesn’t, it implies capital needs to be reallocated towards the risk free asset, which causes a collapse in risky asset prices which then causes the spread to widen again. So yes, the spread adjusts to its old level, but this is via reallocation of portfolios which has a huge impact on flows. Also the relevant risk free rate imo here is US T bill rates, and not Indian gsecs, which are themselves benchmarked to US treasury bills. Indian government and RBI actions have to be seen relative to the true reserve currency of the world.
I completely agree that sudden changes in economics policy will prompt stocks to react–but this is much like how stocks will react to a rumor that there’s an investigation on the CEO of a company (Just an example). And just like the rumor, macro adjustments are better to be ignored in the large scheme of things.
Let’s not forget what Peter Lynch said: “I spend about 15 minutes every year on economic analysis”.
And Risk Premiums are anything but fixed (And no, one cannot ignore local yields and look at the yields of some other country instead), especially in a developing market like India. Here’s the historical Risk Premia for India. The Indian G-Sec’s spread over the US yield (Supposedly the most risk-free rate in the world) accounts for the additional risk and is therefore, locally risk-free.
I simply posit that the value of a stock is always related to how much you can earn elsewhere. In a country of 0% interest rates, I would be extremely happy to earn just 2% on my investments, but that wouldn’t make the underlying stock more risky or less risky. That’s a function of the underlying business itself-- which I’ve attempted to explain in my last post.
Here’s a neat blog post on how stocks tend to correct on the initial news of a rate hike, but actually go on to increase considerably during the rate hike cycle itself (This is in relation to the US markets):
This is an informative article. Thanks for sharing. As the article suggests, rising interest can be good for stocks only if the prevailing interest rate rise from really low levels indicating economic recovery which is a good thing.
However If the interest rate passes its normalised level and continues to rise it certainly impacts equity prices.
I think for a brief period in recent times interest rates in India were 6% while the economy was growing at 7-8% , clearly this was not tenable and equity markets were pricing stocks at the normalized interest level so until interest rate normalized increases had no impact. But now, I think we must have exceeded that level and hence the impact is more pronounced.
Best
Bheeshma
Hello Everyone,
I’m a novice investor and been investing since 2 years. I have read about the bloodbath in 2008 but I really want to understand from someone who has experienced it. Below are my questions. Would be grateful if someone can answer this at least on a high level
What was the bloodbath like in 2008?
What was the extent the stocks fell and what were the factors that led to it?
Was it the worst fall in Indian markets history?
How long did it last, I mean what time it took for markets to recover completely from such a carnage?
And how does it compare to the current fall?
Thanks in advance!
Hi Phreakv6,
That is very true. I was wondering just the same. I have been investing and bought mainly in 2011, 2013, 2014 and the prices we saw since then have been crazy in a relative sense.
Only problem is that the high conviction names are still expensive (Eg: Page, Avenue Supermarts, Syngene, Hatsun, Thyrocare, Bajaj Finance, Gruh Finance, HDFC AMC, HDFC Bank, HDFC Life, Cholamandalam, Emami Ltd). Buying above companies still don’t give enough MOS in my evaluation.
What does give some MOS is something like a Yes Bank, Federal Bank, Skipper, Capital First, IDFC Bank etc. But they are medium conviction Ideas.
So it’s a wait and watch game for me now.
I wonder which are the micro/Small caps you have identified.
