Ever since the markets made a peak of 6100, we’ve been grinding down with each day passing. Whether global markets are going up or not, we’ve been continuously falling. This has lead to a lot of bearish views floating in the market and it seems everyone now is thinking that the markets are going to crash. Some people are also hoping to see 5200-5400 levels soon on Nifty but trust me, I don’t see that happening at all.
The earnings may not have been great but this market never went up expecting earnings to skyrocket. Even with all of this, this market today is trading at 14 times one year forward earnings and right now is not a time when you will see FY14 downgrades coming in as we still have to deal with the fourth quarter of FY13.
Why would we go all the way back to where we were six months back? What changed in last six months and what has changed now that the markets will go back? Markets did not go up just for fun but because government delivered on it’s promises on the policy front and they’re still doing what the markets want them to do and thus rule out the old levels from your expectations. Correction is one thing and a crash is another. Markets crash when something really negative hits the market and I don’t see any such negative news floating in the market.
If the second half earnings of Q3 FY13 was a disappointment, then that is not enough to take the markets back to same levels as before. This market never went up on earnings expectations, because there were never any great expectations from earnings. If at all what is? It is the hope that earnings will improve in the future, perhaps FY14 onwards, not immediately. Earnings don’t improve overnight and market was not stupid to believe that joke and went up all the way to 6100.
Our markets went up because valuation wise we were extremely cheap when we were trading at 5200. If even after all the run up, 14 times is what we trading one year forward, then it is not really expensive. A real disappointment would be if FY14 earnings downgrades happen in a large way, then the valuations will look expensive post further run up from hereon and that could lead to a good correction. We’re not really there yet.
I feel that the markets are just trading in a range and this current one is just a correction post that big run up. People who are sitting on good profits are ought to book them and people who want to put fresh money on the table, they’d like to wait for some correction before they jump, that leads to a correction. Now personally I see 5800-5850 acting as a good support in this correction. On a slightly longer term basis, I see 5600-5700 holding up well on the downside and on the upside, I’m confident of new all time highs being created in 2013. By that I mean, 6300 will be beaten!
I think one should use this dip as an opportunity to buy for long term as this market is going to reward you handsomely in long term. Imagine Nifty at 8500, 3 years from now and good individual stocks that are growing at 30% would almost double itself from current levels. Buy as the market falls and use this opportunity to build your long term portfolio if you are still sitting on cash.
Don’t worry about nifty going to the lows and with it taking down a lot of stocks, if you’re in it for long term, you’re going to make a lot of money and part of the dip is already here in front of you asking you to use it as an opportunity. Imagine someone who had bought Yes Bank at 370 and people who were worried that if a fall comes and Yes Bank would crash and they waited for 280-300 levels which they never got and missed out the rally upto 540. Now who buys at 500 today will sell it at 1000 3 years down the road and people who are waiting for 400 levels would just keep waiting forever.
Valuations are not expensive today as we’re far from being in a peak as we saw in 2010 end or a super peak of 2007 end. We are in a fair value zone or a little below that and thus buying today gives you a valuation comfort, so you won’t see much value depreciation as you may have seen in the past, had you bought around the similar nifty levels and faced a correction. Stick your neck out and go buy into the equities now!