Sensex has corrected by 60% in the last 11 months which is really painful but it augurs well from wealth creation point of view. At current levels of the market is trading at a historical low on one year forward P/E basis. Investments in equity (index in particular/ value stocks ) with long term perspective at current levels will help generate good returns. The problem here is global investors or FIIs are underweight on equity as an asset class.
The following table shows historical Sensex returns since 1990 delivered by the Indian stock markets after every major crash or a bear phase. In Apr 92 the peak P/E was 52x and it took 4 years to recover to the 16x multiple in Nov 95. This is the longest period which was quite painful.
As the history says, Indian investors have created good wealth after any major fall in the index. Markets during such times have given above normal returns, but one should have the conviction to invest with a long term view.
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Earning season is here! does it make sense to wait a bit to get the true picture of PE ratio? It will only now we will know in reality whether india inc is affect by global recession and by how much?
Very useful article. Equities have given better returns in the long term over other investment opportunities.