Tags

, , , , ,

The bull run in Indian stock market  from 2003 onwards made species of long term investor almost extinct, until now. After the significant fall in the market since January’2008 it has become clear , at least to the sane investors, about the downtrend in coming 2-3 years.

Ordinarily,  experienced traders/investors consider 15% average annual return (compounded) on the investment as optimal. Although it seems easy during a bull run when such return is possible during a single trading day for many scrips. However, when investments are calculated in longer term 15% is average return.

NIFTY Daily Chart from 2002 to 2008

NIFTY Daily Chart from 2002 to 2008

NIFTY Shows return of nearly 500 % during the bull run from 2003 to 2007, reaching from 1000 points to nearly 6000. Now it appears to be time for discounting, and perhaps there is still much left to discount. I am not capable of forecasting the exact bottom of NIFTY in time to come. But if we calculate theoretically , from 2003 onwards if NIFTY would be increasing at average 15% annually, today it should be somewhere between 2100-2400.

As suggested by Morgan Stanley that India is in a classic cyclical slowdown: , and global earnings are decreasing , it is possible that market may go low as much as 3000 or below that, assuming it is classical slowdown cycle.

However, that will not be end of the world, and long term investors are now looking for opportunities and Warren Buffet has found one in Goldman Sachs (Read The Motley Fool questioning the timing of Buffet)

There is reasonable possibilities that market go nearly 20-25% down from here in 1-2 years period. Therefore, the person who has surplus, debt free capital which is not required for next 3-5 years can look for investment in selected stocks. In time like now, dividend yield becomes one of the important factor for investment. (Check the top dividend yield stocks of NSE and BSE)

Read about the interesting and brief description of major trends i.e. bull and bear , of stock market by  Robert Davis Edwardsand  John Magee in their bibical book,Technical Analysis of Stock Trends (Read the page no. 18 and 19 in limited preview of Google Book Search). Read another interesting article on Stock Market bottom and approaches for identifying market bottom from Wikipedia.