Previous month of September, Indian share market saw a crash. Especially midcap and small cap cracked the most. And only few companies are somehow holding the large cap Index. A lot of people asked me if market has bottomed out. In reality no one can predict market bottom. So I asked the same question to Big players of the market(both traders as well as investors). After talking to them (big brokers, HNIs, Portfolio Managers) following are my key takeaways:
- Sentiments are at 10 year lows
- Nobody is interested now in buying anything at all.
- A lot of margin linked and redemption linked selling is ongoing across all Midcap counters.
- These are the times when if one has the cash to work with (unfortunately I am always 85-90% invested), one should really start picking up stocks with two underlying assumptions:
- Stocks can fall another 25-30% easily from current levels over the next 6 months as painful unwinding of last 3 years excesses takes place.
- Assume after you have bot, you will see zero to negative returns for the next 2 years and then from the 3rd to the 5th year of holding, that’s when you will see out sized returns once again.
- Stocks can fall another 25-30% easily from current levels over the next 6 months as painful unwinding of last 3 years excesses takes place
- Assume after you have bot, you will see zero to negative returns for the next 2 years and then from the 3rd to the 5th year of holding, that’s when you will see outsized returns once again
- It’s a game of cycles and we are truly done with this boom cycle of 2013-2017.
- 2018 is clearly the bust year. From the face of it, clearly where ever we make the bottom, 2019 will be year of consolidation around that bottom in a 10-20% range. Any structural move will probably begin only from 2020 onwards as earnings of companies get back filled into stock prices, valuations become much more palatable and probably even become severely undervalued and sentiment to invest back into this space once again recovers!
- Also one cardinal rule you mustn’t forget during this carnage – why is my stock falling so much ? Always remember – what is a core holding for you might be non core for somebody else and hence indiscriminate dumping / cleaning process will keep going on for months together going forward until it all settles down.
- So keep the faith, do your homework properly, and do not assume that valuation multiples of 2016-17 are the benchmark – that will save you from buying a Bajaj Finance at 4x P/B as at peak it was at 7x P/B – always look for the last 10-15 year average multiple that any business has fetched – if stocks are below that median band over the coming few months those are truly pockets of attractive bargains and money can be put to work.
Disclaimer – These are not my personal views. These are views of Senior market members, I just compiled there views here for benefit of all.