Maverick stock trader Jesse Livermore, whose life was a curious blend of the sublime and the ridiculous, had famously remarked that the Wall Street offered nothing that was spectacularly new. “There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before, and will happen again,” the legendary trader had said in reference to equities, which made him both a prince and pauper through the years of the Great Depression.
Mumbai stocks, particularly in an election year, stick to an uncannily similar script. The pattern is all too familiar — and repetitive. And if history is an accurate guide to the future, the ongoing correction offers an opportunity to longterm investors.
Data of the past 20 years (or four general elections) show that Nifty made the majority of its gains around the national balloting exercise. The gauge has gained 9,426 points from the lows of 1998 (from 809 to 10,235). About four-fifths of these gains have come during prepoll lows and until six months into the new government.
About 60 per cent of these gains for the Nifty have accrued in the period of six months ahead of the elections to six months after the elections. To further summarise, three-fifth of the gains in the index over the past two decades came in just four years.
Nifty has corrected 13 per cent from its recent peak, due to several macroeconomic factors, the NBFC crisis, high valuations, and political uncertainty. The correction is leading PE valuations to revert to their long-term averages.
The Nifty is currently trading at 17.5 times its projected FY19 earnings, which translates into a 6 per cent premium over 16.4 times — the 10-year long-term average.
Source: Economic Times