The Story of Indian Stock Market unfolding – Part I. By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

March 15, 2016 | Posted by bobbysrinivasan << back to blog

The current Indian Stock Market performance is at best dismal and with the current volatile movement the retail investors will not be able survive both the fluctuation and downtrend. A myth was created earlier that the stock market is the best place to park your long term savings and that it will grow continuously. The logic is as the economy grows corporate profits will increase and this will push up the stock prices (earnings driven). Of course there is enough evidence to establish that this statement is true. However there are several instances where this conclusion is put to test. The current market story will unfold many things that have hitherto not been considered. The analysts and broadcasters on TV channels believe that the market should recover using the earnings driven theory and so expected the market to move up in the near term. They keep talking about the support level below which the market may not fall. Theoretically if such a bottom picking is possible then new millionaire will be created because stocks can be bought cheap (Warren Buffett’s theory). This is an ongoing conversation between a student and his finance professor.

Student: I notice every day the Sensex and the Nifty are falling. As of now the Sensex has dropped from 30000 a few months ago to 23492 today, while the Nifty has dropped from 9000 to 7136. This is a near 20% drop and it is scary. When will it bottom out?

Professor: I may be a Professor of Finance, but I haven’t got the faintest clue as to why this is happening. However I am good at identifying all possible observations for this fall out. It is possible that one of my observations may be closer to truth.

Student: I am all ears.

Professor: First of all, you may want to know as to why it behaves the way, it does. A 20% drop is significant but in the global context, it really is not that significant. There are several instances in the world stock market much worse has happened. Let us start with the Japanese Nikkei. In 1989, the Nikkei index touched 38500 from where is crashed to 6000 during the next two decades. The US Dow Jones in 1999 during the dot com bubble dropped from 16000 to 6000.

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