We are staring at a bull market like never before. Nobody is complaining but with each passing day, two things are going higher – number of stocks at a 52-week high and number of naysayers in the market who are telling us the market should come down.
This is a typical phenomenon of the bull market and every bull market has gone through these phases of disbelief. This time thanks to social media and lot of channels and everything, there are a lot more noises and the structure of the market has fundamentally changed. That change is creating a greater scepticism. This change is about the retail revolution, coming on the tails of the Robinhood culture. The Robinhood culture is normally about new investors joining but it seems the floodgates of the market have been opened to the retail investors thanks to digitisation and they are coming in hordes.
This entry of retail investors will be on for the next 2-4 years. We have a slightly different type of market. This is a much stronger market than what we have seen otherwise in the earlier bull markets because earlier bull markets happened without retail investors, particularly in 2007-2008 and even before Covid, retail movement was very weak. Now it is distinctly strong and that is why the backdrop of participation will be different. How it will show up, only time will tell but in the party where there are many people, I think the fun is a lot more.
Some would argue that the new crowd which has invested in the market has not seen a correction. So what happens when the correction kicks in?
Yes, correction will happen and it can be deeper also. It might look like a mini crash. One cannot defy the natural law of the markets. It will happen. And whatever happens, a lot of guys will fall by the wayside and there will be nasty experiences. The IPO market will fizzle out. All these things happen and that is a part of the market cycle. But you should not be scared of these things. It is part of the game.
What I am saying is that if it does not happen, then it is very unnatural and that is the unease right now that it has not happened for quite some time. FIIs are selling shares worth billions of dollars in the last one week but still markets are refusing to bow to them. With billion dollar sales, there should be blood on the Street, but there is no blood on the Street. But that does not mean that correction will not happen. For some other reason, the corrections will happen eventually.
Why are Indian markets outperforming so much? It has lasted for an extended period of time.
We must have unperformed earlier, it is a churn. In 2021, we are doing very well; in 2020 or 2019 we must have done very badly and so it is just a reversion to the mean. But don’t just look at the last six months; we might have outperformed big time but that does not mean that we have done very well on a three-year or five-year basis. Markets have their own cycles in terms of when they will outperform, well they will underperform but if you look at little longer series I do not think we are very different from emerging markets or developed markets or things like that.
So while we can look back and talk about Sensex at 60,000 and 17,000 on the Nifty, we have simply aligned with the long-term averages?
Yes. When I said 50,000 can go to 2,00,000 in 10 years, it created a buzz. Clearly what I am saying is the market will be up four times from 50,000 to 2,00,000. The Sensex has done 4X in 10 years, many times.
If you analyse the Sensex movement, in the last 40 years, the stock market from 1000 has become 60,000. Now that gives me a compounded return of 15.5% ex-dividend, at 16.5% or 17% so if it has given 15.5% on index. But the first decade was 20%, second decade was 20%, third decade was 13% and the fourth decade was 10%. So what I am saying is the worst would be about 130,000 and the best can be even 3,00,000. The conservative or fair estimate aligning with the long-term average of 15% gives us about 2,00,000. If it goes to 170,000, 180,000 or 210,000 we have still done well.
We are buying into the future when buying stocks. So, there are some expectations. What is the expectation? Do not have the expectation of 2 saal mein double ho jayega, 3 saal mein double ho jayega, yeh sab kuch nahi hona wala hai long term mein (It will double in 2 or years). In next six months, you might get 15%. That does not mean that you will be 10X in 10 years, no. Index will never do 10X in 10 years. That is very unlikely. What happened between 1990 and 1992 was an unprecedented bull run. In 19 months, the Sensex went 6X from 700 to 4200. That is why the Harshad Mehta bull run is remembered. I do not think that kind of thing is going to happen in this market.
But again, that 4,200 came down to 2,500 and so it will correct. The market has that correction mechanism. It will correct and in wholesale at one time or it can correct as you go along every three months or six months. But one does not know what will be the pace, what will be the correction. There will be mini crashes. That is the part of the deal.