26 July 2013

Last 5 Years, Next 5 Years - A small study on Indian Stock Markets

Everyone interested in stock markets these days has following perception:–

Markets have not done anything in last 5 years. The index has not moved anywhere at all!!

And that is true. Numerically speaking, markets seem to have done almost nothing in last 5 years (2008-2013).

Now it seems sensible & obvious that one should buy low and sell high. But what should one do when markets have not done anything substantial in last few years? And we are not talking about individual stocks here. We are talking about broader markets. The indices. Individual stocks can take an altogether opposite trajectory than the market.

To answer this question, we decided to look back into the past. We analysed Nifty’s data for last 22+ years (1990-2013). We checked this data for two things:

  • Returns during last 5 years (for everyday since 1995)
  • Returns during next 5 years (for everyday till 2008)

And what we found is summarized in table below –
 
Returns in last 5 Year - Returns in Next 5 Years - Correlation

What the above table means is that - “If returns of last 5 years are not great, chances of having great returns in next 5 years are pretty high.”

Now that should bring a smile on faces of those who keep cribbing about poor returns in last 5 years. :-)

So will the market give stellar returns in next 5 years (2013-2018)? The answer is that we don’t know. But as per historical data, chances are quite high.


So, will you take chances now? Will you go ahead and invest for next 5 years? What will you do?

______

4 comments:

  1. Hi,

    This is interesting to know :) And also I have lot of hopes on future trend of stock market. General elections may hold the key !!

    By the way we have not seen the second part of Dead Monk's Portfolio? When are you planning to bring that out? Eagerly waiting :)



    Thanks
    Prasanna

    ReplyDelete
  2. Excellent analysis..thanks.

    ReplyDelete

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