After pain, is it gain? - Views on News from Equitymaster

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After pain, is it gain?

Jan 5, 2002

Year 2002 has started on a good note. If the markets, globally, are anything to go by, one can expect an economic turnaround sooner rather than later. Pointing to a better equity market performance could also be the fact that this is the first time, since the nineties, that the Sensex has declined two years back-to-back. Point-to-point, considering start of each year, there were only two years during the nineties when the Sensex registered negative returns. Contrary to the start in the current decade, the markets brought in the nineties with a blast. The BSE Sensex, point-to-point, had five straight years of positive returns. That much for complaining the nineties have been a bad time for equity investors. For the many who lost, this fact, all the more, highlights the importance of diversification and choosing quality, as compared to stories (stocks) that makes one rich overnight. Adopting a more disciplined methodology, considering the randomness of markets, is likely to yield more consistent returns. Over the nineties, the Sensex gave a compounded return of approximately 13.6%.

The millenium, however, has not begun on the same heady note. Global indices have experienced two consecutive years of decline. For 2001, the Sensex slipped by 17.9% following up on a 26.4% decline in the previous year. That said, relatively, the Sensex has outperformed some of its more prominent peers in 2001. Tech heavy, earnings light, NASDAQ, was down 21.1% while the Hang Seng (Hong Kong index) was lower by 24.5%. The Dow Jones, a blue chip index, which re-emphasises the earlier point, declined by only 7.1%.

While markets did expect a global turnaround by mid-2001, which was pushed back to fourth quarter of the year, now expect a revival in the first half of 2002. Going by the track record on making calls, the market does not instill much confidence. But then one could ignore market fluctuations and adopt a systematic investment strategy to yield consistent returns.

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