Markets have been on a continuous downward spiral for almost 8 months now. From the highs of October 2021, major indices are down between 15-25% and there is no hope in sight. The newspaper headlines have changed. From loudly cheering the growth stories, they’re now howling about the impending recession, rising inflation, crude prices,etc. GDP projections are being downgraded on a daily basis.
Stock returns are almost zero to negative on a one year basis and major stocks are down anywhere between 25-40% from their recent highs. TV channels, twitter and newspapers are filled with experts loudly voicing a deep long drawn bear market ahead of us. Absolutely no one is bullish on Stocks!
I will be making the same call I gave out last year. India is going to experience a multi year structural bull run, not just in equities but in economy as well. This correction is one brutal Bull Market pullback which is par for the course. It is ensuring that the sector rotation which was badly needed is underway. The last bull run heroes are being mauled while slowly and steadily the new leaders are emerging.
Look at the price movement in Reliance and ITC. Both the heavyweights are trading within 5-10% of their highs and if not for them, nifty would be down to 12-13000 levels. On the other hand, Bajaj and HDFC group stocks are battered. Metals have begun to move south. The bubble levels in speciality chemicals, mid cap IT, sugar, diagnostic companies etc are being deflated. Saurabh Mukherjee’s fund is underperforming so significantly that he’s going around town explaining a concocted term – return holiday in quality stocks. Well, this is just another term for time wise correction. It happened to Reliance between 2007-14 and to ITC from 2015-22. It is bound to happen with HDFC group and Bajaj Twins as well.
Behavioral finance teaches us the importance of being contrarian in light of the madness of crowds. The whole world is fearful of the future. FII have sold out the entire net investment they made between 2010-2021. They have pulled out over $40 Billion in the last 8 months alone. On a much lesser drawdown, our markets were down 60% in 2008. If it were not for you and me, the retail money, nifty would have been at sub 10k levels.
Warren Buffett tells you to be greedy when others are fearful. This is the perfect time for being extremely greedy. Stocks are battered and are being written off. The correction is slow and painful, thus also making sure the required time wise correction is in place along with the price correction. Covid time was a deep price correction but thanks to strong intervention by the governments and the global central banks, there was hardly a time correction. In order for a bear market to end, extreme despondency among investors is necessary.
How does a market bottom out? It bottoms out when there is no buyer. When there is so much pessimism, such negativity that every rally gets sold into and we keep falling back. In that case, anyone who wanted to buy steps aside. Thus, whosoever wants to sell can’t sell any further. We are very close to that point. Nifty has gone down to 15800 in the face of relentless selling four times now. However, at every point, there is some recovery. It is not breaking down any further. The selling exhaustion can be sensed in multiple stocks which are down beyond reason. Isec is down 55% when its profits are up 30% over the last one year. It’s trading at 10 times earnings and 6% yield. This is madness.
I remain eternally bullish on the India story and strongly believe that this too shall pass. We’re in the midst of a roaring bull market and this is nothing but a passing correction. In three years’ time, we might look back and say, oh it was a great buying opportunity!
Life is all about Compounding! 