Getting the right perspective #Nifty

As long as the going is good, one has not a care of the factors that are driving or the factors that are being ignored. But as soon as the markets start to react, all the worst kept fears start coming up as the reasons markets may continue to fall and even though markets are already down quite a bit, commentators make it seems that this is just the start of a massive fall that can continue for long.

Since 2008, every fall (and we have seen a nice intra-year correction every year, but more of it later) is seen as the start of the fall which will be similar if not even more severe than 2008.

In 2013, markets made the low of the year on 28-08-13. On that day, we closed 14.58% below the highest close of the year. The key reason ascribed for the fall was “US military action on Syria”. Of course, while Syria continues to burn, markets themselves made a splendid recovery.

Its interesting how media can blow up news to make it seem that the End of Day is nearby. This India Today (Link) report seemed to suggest that the end for India was near – Doomsday being the word used. Do check the date of the report – its a day before markets bottomed out. Markets closed the year flat (gaining around 20% from the day of the low).

23rd of May 2012 was when markets made the low of that year. On that day, Economic Times carried a article which quoted the following

“It seems all grim,” Morgan Stanley’s Ridham Desai said in a note. “The macro mix exposes India to global events more than it may choose to.” Morgan forecasts current account deficit — the excess of imports over exports — and fiscal deficit to fall this year, which will help equities.

Another reason for the crash was Greece. Remember the PIIGS? While once again, we are yet to see there being any recuperation by those countries from the hole they dug themselves into, markets recovered pretty strongly. In fact, one of the reasons that is being ascribed to the current fall comes back to the issue of Greece.

December turned to be a pretty bad month for Indian markets in 2011 as it capitulated towards the close of the hear. Instead of having a Santa Claus rally, we saw the fear of Halloween. The whole year as such was one of bearishness but the final cut came as RBI did not cut CRR as markets expected in face of a weak IPP indicated a economic slowdown. Analysts were worried about the worsening asset quality of banks, especially those in the public sector.

While markets did not recover in 2011, we saw one of the best rallies with the start of 2012 with January and February posting a very strong up-move.

The average draw-down we see every year comes to around 13% and this year, we had not seen a deep draw-down till date. Even after today’s fall, we have fallen just 5.43% from the peak of the year.

As the above chart clearly lays out, from the top for the year, Nifty has in no year retraced less than 10.66%. Some food for thought, eh 🙂

I strongly believe that the current situation is not anywhere close to what we witnessed in 2007 / 2008. By almost all parameters, we are much better, much cheaper and better equipped to handle any fall out that may arise out of international events. But with markets becoming volatile, its easy to lose perspective and go with the herd. The herd unfortunately as evidence has pointed out many a time in the past tends to act wrong at the worst possible time.

In my earlier view on Nifty, I had said that this time maybe different. While markets had immediately bounced back, the reasoning I had was not unfounded and I believe that even now, some more pain maybe on the cards. But instead of rushing to the exit, that maybe the best time to load onto stocks that you had missed when it had rallied earlier.