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Bear market: A lot of people are trying to compare the current markets with 1929 and 2008 crisis and are trying to predict two things: how low will the bottom be and how fast will be the recovery. To put things in perspective, this crisis is very different (1/n) #nifty
This is one of the few times when both demand side and supply side issues are acting simultaneously. Generally it starts with one - demand or supply and the other side follows. Secondly, this crisis is largely created artificially because of global lockdown (2/n) #bearmarket
All supply side measures taken by various govts by way of fiscal and monetary policies, will start kicking in only when the lockdowns are lifted. The sooner this happens the better. (3/n)
One important thing to note is while the lockdowns are active they are not only affecting the current demand but also future demand as due to lack of economic activity, there is an impact of wages, salaries, profits, etc. 4/n)
Not only that this will trigger risk aversion amongst entrepreneurs and they will invest less impacting future wage creation. Amongst consumers they will consume less, try and save for the rainy day. Savings will increase and consumption will go down (5/n)
Now let's compare the crisis to 1929, in my opinions the situations are completely different. During 1929 crisis, the govts were not equipped with modern day tools to tackle demand/ supply side issues. (6/n)
However, these days the global govts are not only better equipped but also more proactive in hadling a crisis of this scale The central banks around the world will continue to pump money till equilibrium is restored.(7/n)
Now talking about market bottoms...markets took a long time to recover from 1929 crisis while during 2008 crisis recovery was steeper. One reason is quick application of fiscal and monetary tools and the second reason is 2008 crisis did not affect the demand in a secularly (8/n)
Now let's assume a few things stock markets are ahead of real economic activity by 6 months and at some valuation businesses become attractive again as the world is not ending and businesses will continue to thrive. (9/n)
The Nifty high before the fall started was around 12400...the markets were already overvalued at that time, let's discount that by 10%, we get 11160...assuming lockdown will shave off earnings for complete 1M, 75% for second month, 50 % for 3rd month and 25 % for next Qtr (10/n)
This comes to 25% further discount. Also earning rowth premium will not be there so let's discount by another 15%, this gives us a bottom of 6700...so here you have it... obviously, this may change based in situation, speed of recovery and how soon lockdowns will be lifted 11/n)
Disclaimer: crude calculations, with a lot of assumptions at best a calculated guess. Please do your own due diligence... #findingthebottom #banknifty #EconomicCrisis #SlowDown #indianeconomy (12/n)
