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Friday’s 515-point rise in the BSE Sensex to 9810.46 was not a surprise for market observers as every meltdown in the past had offered buying opportunity and huge returns in short-term.
The BSE Sensex fell over 1,700 points between January 14 and May 17, 2004, and bounced back. Even at yesterday’s level of 9,300, the Sensex shows over 100 per cent appreciation over its May 17, 2004, level of 4,505.
The bellwether index has fallen more than 3,000 points and S&P CNX Nifty by over 1,000 points in 20 trading sessions even though there has not been any change in the fundamentals of the economy.
According to Deven Choksey, managing director, KR Choksey Shares & Securities, the first 1,000 points fall was triggered by the metal meltdown on the London Metal Exchange (LME), the second 1,000-point decline was due to the flight of hedge fund investors while the last 1200-point dive was attributed to the unwinding of positions.
This essentially means that the free-fall was triggered by compulsion and not conviction of investors and fund managers.
At the 12,600 level in the second week of May, the Sensex stocks were quoting at a price-earnings ratio (P/E) of more than 20 times. At 9,300, P/Es of the Sensex stocks were quoting at less than 14 times on its forward estimate of FY07.
Those who seized the buying opportunity in the stock markets after the World Trade Center attacks on September 11, 2001, won a fortune. Of the 1,000 stocks that relegated to their 52-week lows between September 11 and October 31, 2001, as many as 152 stocks had appreciated by 100 per cent after hitting their lowest levels.
Those who bought shares on May 17, 2004, are currently enjoying over 100 per cent per cent gain.
Almost 75 per cent stocks have gained by over 100 per cent while another 18 per cent stocks gained between 50 per cent and 99 per cent from the May 17 levels. Investors in as many as 145 companies have made over 1,000 per cent gains.
The market prices of another 200 companies rose between 500 per cent and 999 per cent each.
During the Sensex fall of over 3,000 points in the last 20 trading days, returns turned negative first time in the current calendar year.
The 20 days fall in the market prices of all trading stocks averaged at 32 per cent while the investors wealth valued at over Rs 10,00,000 crore has already been lost.
Shares of 130 companies declined by more that half of their May 10 levels while shares of 1,500 companies declined between 50 per cent and 99 per cent each.
The market value of 18 Sensex stocks declined between 25 per cent and 40 per cent while 12 Sensex stocks witnessed between 16 per cent and 24.9 per cent fall each.
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(3 votes, average: 3.67 out of 5)
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June 12th, 2006 at 1:41 pm
Interesting insight BG, as always !
June 16th, 2006 at 10:36 am
so, will the index go back to 12,600 again soon? If nothing else has changed, it should rally right?
July 3rd, 2006 at 4:54 pm
I have been investing for over 15 years now - as an individual investor. This focus on the market crash( my third or fourth) leaves me indifferent.
As long as a company keeps increasing its profits in relation to its equity its stock price will rise. If it does at a rapid rate , the rise will be rapid in the stock price ; if the profits rise at a slower rate ; the stock price will rise slowly. Thus , your return will be commensurate with this rate rise.
As an aside :
My concern Mr. Shirsat is that your P/E ratios are not accurate - check your P/E ratio for HDFC and check the same ratio as reported by Businessline. There is a huge difference ; my calculations show Businessline to be right.
Similarly Tata Tea figures are substantially different.
Pl clarify - kindly email me so that I have your email id for future reference.