As we analyse the performance of the stock market over the past 30 years, we can observe that it has progressed through three distinct stages. The first phase, spanning from the early 1990s to 2003, was characterised by several notable rallies, such as the Harshad Mehta rally in 1995 and the boom in 1999-2000. By examining the logarithmic chart of Nifty, we can see a significant initial surge in the 1990s followed by a correction and subsequent levelling off during this phase.
The second phase, occurring between 2003 and 2008, witnessed another remarkable upswing, followed by a correction and a period of stabilisation. Similarly, the market experienced a rally from 2013-2019, followed by a correction and then a post-COVID rally. Currently, the market appears to be in the early stages of yet another phase of growth.
However, it is important to note that the magnitude of gains observed in previous runs has not yet been replicated. For instance, from the 2003 low of around 900-1000 Nifty points, the market underwent a six-fold increase over four years. If a similar pattern were to occur after the COVID bottom, we would expect Nifty to reach around 48,000 levels. Thus, the market has yet to demonstrate the kind of exceptional growth seen in the past.
It is crucial to realise that making predictions about the market being overextended or reaching significant tops is merely speculation and futile. Instead, we must understand that the market operates on its own timeline and will follow its natural course. The recent movements in the market are not an outlier but are rather consistent with historical trends.
When examining the major market trends, we can observe certain phases characterised by varying levels of steepness in the gains. The current phase appears to be maturing and displaying a shallowing slope in terms of gains. Consequently, there is no need to excessively worry about valuations or the narrative surrounding them.
As long as liquidity continues to flow into the market, and other markets are not as attractive as India, there is no cause for major concern. Valuation experts may base their assessments on earnings projected for 2024-2025, but the market tends to take into account the long-term prospects of a country over the next decade or more. Historical precedent suggests that significant upward surges occur when evaluating a nation’s potential over a several-year span. For instance, in 1992, the market surged from 300 to almost 1400 points, resulting in a four to five-fold increase.
It is important to note that these periods of rapid growth are often followed by periods of consolidation, wherein the market maintains relatively stagnant levels, undergoing minor corrections. This cycle repeats itself, and history indicates that the market tends to experience periods of doubling followed by corrections. Therefore, we need not be unduly concerned about the headline index.
The benefit of remaining calm and sticking to a well defined strategy !
Instead, it is advisable to stick to a well-defined investment strategy and follow it diligently. By remaining focused on our individual investment goals and strategies, we can navigate the market’s fluctuations with more confidence. Reacting impulsively to market narratives or attempting to time the market based on valuation concerns can often lead to suboptimal outcomes.
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