Prognosis for Samvat 2071: Expectations from the Bull Market

Sensex and Nifty have given a 26% return during Samvat 2070, making this Diwali a special occasion to rejoice for the Bulls. The Mid & Small Cap indices have given even better returns in excess of 50% over the past one year. Most of these returns are attributed to the 'Namo effect', whereas the economic turnaround is still a few quarters away. With the front line indices scaling new highs at the end of October 2014, the risk-reward ratio is turning highly unfavourable, as the markets may struggle to produce similar returns in Samvat 2071.

 

There seems to be a consensus amongst analysts with respect to the start of a 'Secular Bull run' in Indian equity markets. Yet it is my duty to sound a word of caution: it is quite easy to lose money in bull markets as well, if we show disregard to the risk-reward ratio. Consider this: The average consensus on the Sensex/ Nifty levels for Diwali 2015 are 30000/ 9000 respectively, and the current level of these indices are 27866/ 8322 respectively. From hereon this would result in an annualised return of 8% for the year if fresh investments are made at current levels. This kind of a return would be a shame for any equity market investor, because he can earn this return on a Bank fixed deposit, without taking virtually any risk. If we are investing in equity markets we must look for a 15-20% return, specially when we are in a secular bull market.

 

Although investors who could not join the party in Samvat 2070 may be feeling left out, yet they are advised to exercise caution at current levels, and should think of entering the markets only on meaningful corrections as and when they come about. A 10% correction from current levels could take the Nifty towards 7500 which would be a good level to make fresh investments. Any decline below these levels could be an added bonus. Investments made at these levels could fetch you the desired 20% returns in Samvat 2071, a just reward for equity investment in a bull run. As the international cues are likely to turn negative sooner than later, a reasonable correction may not be too far fetched. Wishing all investors a Happy Samvat 2071.