There’s a song by Tyrone Davis that goes, “What goes up must come down.”. That is true of the market in many ways. Of course, you can have higher highs and higher bottoms, but the market does not move only one way. Given this, it helps to try and assess where one might be in a market cycle. And while projections of any kind are riddled with flaws, an empirical study of market moves in the past does offer some clues.
We looked at how stocks have trended in India since 2000 to try and make some sense of the trends.
Varied gains and lengths
A study of the gains and periods between trend highs on the Nifty reveals a mixed picture. Uptrends in the past have lasted anywhere from four to seven years—if you calculate the period from one high to the next. Similarly, the gain from one high to the next has ranged from nearly 11 percent to over 215 percent. This suggests that there is a fair deal of variance in the length and scope of market trends—from one high to the next. But getting from one to the other does take some years.
The key question today is whether the sudden drop induced by COVID in 2000 should be assumed to be the end of a trend or an interruption in it. If the latter, the trend period would need to be computed from March 2015 and that would put us about eight years into it, and ups the likelihood of a major peak being established soon. On the other hand, if we were to assume that the uptrend since 2000 is a fresh move, we are barely three years into it, and we may have about 12 months or more to go in it.
The picture also changes on gains, while the rise over the January 2020 peak is about 52 percent so far, the gain over the March 2015 peak is about 107 percent.
Back to basics
So, what do you do under such circumstances? Go back to the basics. Sell stocks when their valuations reach stratospheric levels that you can’t begin to justify. We may not be there yet, and that leaves some scope for gains. Also remember, bull markets tend to overvalue stocks by a fair bit before they run out of steam. Therefore, hold on to your investments and enjoy the ride. We may even have as much as a year to go in this uptrend. But remember to draw a line below which you will exit, so that if the market turns suddenly, you don’t let greed and hope cloud your judgment.
Can the Nifty get past 20,000 and scale to 22,000-23,000 in this uptrend? That’s not outside the realm of possibilities. The question is: are you prepared? Get set.
Happy investing.
We looked at how stocks have trended in India since 2000 to try and make some sense of the trends.
Varied gains and lengths
A study of the gains and periods between trend highs on the Nifty reveals a mixed picture. Uptrends in the past have lasted anywhere from four to seven years—if you calculate the period from one high to the next. Similarly, the gain from one high to the next has ranged from nearly 11 percent to over 215 percent. This suggests that there is a fair deal of variance in the length and scope of market trends—from one high to the next. But getting from one to the other does take some years.
| NIFTY - PLOTTING HIGHS | ||||
| Month | High | High Break | High to High (%) | High to High (Yrs) |
| Feb 2000 | 1818.15 | NA | ||
| Jan-04 | 2014.65 | Mar-05 | 10.8 | 4 |
| Jan-08 | 6357.1 | Mar-14 | 215.5 | 4 |
| Mar-15 | 9119.2 | Mar-17 | 43.4 | 7 |
| Jan-20 | 12430.5 | Nov-20 | 36.3 | 5 |
| Dec-22 | 18887.6 | 51.9 | NA | |
| Note: In December 2022 Nifty hit its highest in this trend so far. | ||||
The key question today is whether the sudden drop induced by COVID in 2000 should be assumed to be the end of a trend or an interruption in it. If the latter, the trend period would need to be computed from March 2015 and that would put us about eight years into it, and ups the likelihood of a major peak being established soon. On the other hand, if we were to assume that the uptrend since 2000 is a fresh move, we are barely three years into it, and we may have about 12 months or more to go in it.
The picture also changes on gains, while the rise over the January 2020 peak is about 52 percent so far, the gain over the March 2015 peak is about 107 percent.
Back to basics
So, what do you do under such circumstances? Go back to the basics. Sell stocks when their valuations reach stratospheric levels that you can’t begin to justify. We may not be there yet, and that leaves some scope for gains. Also remember, bull markets tend to overvalue stocks by a fair bit before they run out of steam. Therefore, hold on to your investments and enjoy the ride. We may even have as much as a year to go in this uptrend. But remember to draw a line below which you will exit, so that if the market turns suddenly, you don’t let greed and hope cloud your judgment.
Can the Nifty get past 20,000 and scale to 22,000-23,000 in this uptrend? That’s not outside the realm of possibilities. The question is: are you prepared? Get set.
Happy investing.
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