Most experts believe that while equities may see heightened volatility
this year, it will be a far cry from the year when shares halved in
value.
Noted
analyst Shankar Sharma of First Global set the cat among the pigeons
recently after he remarked in a CNBC-TV18 interview that the ongoing
price swing in the market made January 2016 "eerily resemble" January
2008.
Sharma, however, was quick to make it clear that he was not forecasting a market decline of similar magnitude (in percentage terms) this year as one witnessed in 2008 when the financial crisis engulfed the globe. He said he was merely saying a quick and brutal selloff, with a similar intensity and pace was around the corner.
But the comment caught the market's attention and other experts have
weighed in since, and most believe that while equities may see
heightened volatility this year, it will be a far cry from the year when
shares halved in value. Here is a cross section of views culled from a
number of market pros on their view of the current correction phase.
"The kind of doomsday scenario
which is being talked about or debated, I don’t think that kind of a
situation will unfold especially for India. If you look at the American
markets, the US markets, they are trading at highs and therefore there
is room for them to correct. However, India is off already significantly
from the highs, from the levels of 9,000 on the Nifty, we are already
at 7,500," Nilesh Shah of Envision Capital told CNBC-TV18.
Shah said that while there are still individual pockets of the market where one could see correction, the market, he reckoned was not going to "fall off a cliff".
Eight year cycle:
Shah weighed in on the much-discussed "eight-year cycle" that equities, globally but particularly India, follow: Indian shares have seen decline in each of the years 1984, 1992, 2000 and 2008.
"It adds up very well. It is a fantastic piece of arithmetic progression
but I am not too sure whether it is going to repeat itself in the same
manner," he said, outlining that unlike in those years, the market had
not recently peaked out and that it lacked euphoria that exists just
prior to a bubble popping.
"You are not seeing some kind of mania that we had seen at the tops in
1992, 2000 or 2008, you have not seen like poor quality IPOs getting
oversubscribed 50-200 times," he said.
CNBC-TV18 Consulting Udayan Mukherjee too believes that comparisons
to 2008 may not appropriate, for the simple reason that while history
may rhyme, it doesn't repeat itself.
"My base case is the market falls a bit longer but I don't the Nifty is going to 4,500 from 9,000 [like it fell 50 percent in 2008]," he said. "I wouldn't liken it to 2008 because bull and bear markets, crises and opportunities all resemble different forms. No pattern is identical."
Market cap to GDP:
Leading
fund manager Anup Maheshwari of DSP BlackRock believes that another
factor that shows valuations are not out of whack is the
market-capitalization-to-GDP-ratio.
India's current mcap stands at a around Rs 100 trillion while size of the economy is around Rs 130 trillion: bringing the ratio to about 80 percent. This has retraced from a little under 100 percent when the Nifty peaked at 9,000.
But in 2008, valuations had achieved such proportions that the mcap-to-GDP ratio peaked at about 150 percent.
2008 in a league of its own:
Finally, noted investor into Indian equities Adrian Mowat has a simple reminder, when he points out that the state of the global economy is nowhere near what it was back then.
"Remember, that was a global financial crisis; we were questioning the viability of the US financial system, we then rode into a year old crisis. Leverage in the developed world has come down particularly in the corporate sector we have reasonable economic growth and we tend to measure this a bit more while looking at housing market, looking at labour data rather than volatile GDP," he said.
"I think we have expensive developed market particularly in the US, maybe there is a bit of a downside there but this is not a financial event," he added.
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