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No end to Sensex run, history shows

Posted by Yogesh on Tuesday, 28 October, 2008

MUMBAI: In the face of deepening crisis of confidence in the capital market, investors need to remain patient going through the annals of past Sensex movements in the last 15 years.

“It is important for all investors who invest or tend to invest in equities to take a trip down memory lane, particularly during times when the investor felt tired and let down by the market. This kind of despair is nothing new, but public memory being short, one tends to forget earlier days of despair,” said C G George, Managing Director, Geojit Financial.

Below is a table showing the peaks and bottoms of the Sensex in the last 15 years.

Table

The historic bull phase started in early 1990s touching one time high at 4,546 from low of 1,980 during the Iraq invasion to Kuwait in April 1992. During this period, the stock exchanges witnessed an amazing rise in investing population.

Later, when the hero (or villain?) of the great bull market, Harshad Mehta, was caught by the law enforcement agencies, the market collapsed like ninepins. The crash left new investors who had entered the market at the peak in utter distress.

Pointed out Geojit’s George, “the pain was much more than what we are seeing these days. The market mood was incredibly low and many investors along with doomsayers predicted the end of the market and demise of an asset class called equities.”

In a short span of one year from April 1992 to April 1993, investors found their wealth being eroded by more than 55 per cent. Many fortune seekers who borrowed and invested their life-time savings saw their wealth disappear. Though the index came down by only 55 per cent, many of the shares manipulated by operators came down to zero value. This tragedy occurred at a time when market regulations were weak and SEBI had no effective punitive power. However, investors who sold in panic during April 1993 when the index was at 1,980 points, had to repent later.

In a matter of 17 months the same market bounced back to touch 4643 points. The next peak was at 6150 achieved in 3 years 2 months, the next at 6249 captured in 2 years 3 months, then at 12671 (in 2 years), 14723 (in 8 months) and finally at 21206 points in the next 10 months.

Commented George, “all those who courageously got into the market in each of the troughs and waited patiently made incredible wealth as the market always peaked above the previous peak.”

Echoing similar views, Krish Shanbhag, head – research, Antique, said, “investors should always take realistic view about stock market. There is no magic wand in the market that will help you generate 30-40 per cent return overnight. Falls in share market are very natural, but getting into panic selling because of that is no wise decision at all for an investor.

Investors who invested in each of the market peaks, saw their wealth going down by 40 to 60 percent, or even more! Said Raju, Mumbai-based real estate broker, “I invested almost Rs.5,00,000 in equities when Sensex was at 18,000. Now, my value has come down to Rs. 1,20,000. But I will not sell a single share unless and until the market starts rebounding.”

Investors who can invest now, particularly in companies which are sitting on lots of cash in their balance sheet, will make extraordinary returns when the dust settles down. This is no end of market, analysts conclude.

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