Nifty made an all time high of 9119 on March 4, 2015 and since then kept drifting lower and then made a 52 week low of 6825 on Feb29 this year. This fall of approx 2300 points was the second largest fall in absolute terms in the history of the Nifty index.In this period we had several stocks falling as much as 50 to 70%. Stocks of some companies, that were even part of Nifty once upon a time, are now trading in single digit. The carnage was absolute. In between we also had a Black Monday on Aug24 last year when the Nifty fell by an unprecedented 491 points in a single day.
All that could have fallen had fallen in those wretched 12 months for reasons genuine and imagined. So it is no surprise that markets made a panic bottom on budget day and since then haven’t looked back.
— Sumit Sethi (@Sethinomics) March 6, 2016
After the budget day bottom on Monday, the 29th of Feb, Nifty reversed sharply the next day. By the end of the week on Friday, we were sitting on the best weekly gains for the index in almost 8 years.Such strong reversal happens once in several years and must not be taken lightly.
Looking at the chart above, the last time Nifty touched the lower end of the channel in Aug 2013, we had a 4000 point rally in next 18 months for the Nifty.
If history gets repeated, another 4000 point rally in a similar time frame from the lows should take the Nifty close to 11000 next year as i have mentioned in the title of this post.
Now dear reader, it is natural for you to be skeptical of such an astronomical target when all seems lost for stocks after a year long massacre.
But historical evidence says that it is no big deal for Nifty to rally so much in such under 2 yrs. It has already done a 4000 point up-move in 2009-10 and then again in 2013-15. Why not again?
In 2008 we had a global financial crisis and there was extreme pessimism.Then in 2013, we had a govt that was tainted by scams, Rupee that was at all time lows and the rating agencies were threatening to downgrade our sovereign ratings to junk.From such scenarios, Nifty rallied 4000 points in next two years to hit all time highs.WHY NOT AGAIN?
Compare these dark days to the present times.Currently we are the fastest growing large economy. IMF hails us as the “bright spot” in a world that is slowing down.
We have a stable govt at the centre that is going nowhere for next 3 yrs.Mega reforms which were only dreams a few years ago will soon become a reality. The country will eventually have a GST for FY18 after a delay of a decade.Power discoms
are also headed towards profitability. The nation of 1.3 billion will have 24X7 electricity by 2019, which is not that far away, considering that we have been waiting for almost 7 decades. Targeted subsidies will start saving the govt more than Rs 1trillion per year very soon and also lead to empowerment of the masses. All these reforms will take us to a new orbit of high growth.
When all the above mentioned stuff does come true, i believe, the institutions that were buying when Nifty was near 9000 will be buying even more aggressively,taking Nifty to even higher levels.
But isn’t 11000 for Nifty still too high?
Definitely not as per me. Wasn’t 6300 improbable when we were at 2000 odd n 2004. Still tripled in next 4 yrs.
The Index was at 6300 in 2008.From 6300 in ’08 to 11000 in 2017 for the Nifty will still translate into just single digit annualized returns!!!
So i will conclude by saying that after the recent correction and improving fundamentals, there was never a better time in last decade to get bullish on stocks.
KEEP CALM AND INVEST WISELY.