HOW MUCH THEY CAN CORRECT?????

It is now very clear that the 5year old bull market which started April 2003 has ended in India with more and more number of stocks hitting 52 weeks low everyday.And as usual people are still not accepting reality and are buying at every fall or every feeble rise thinking that the bottom is nearby.These are not investors(atleast most of them) who is buying with 2to3years holding in mind.But they may become such long term investors because of market conditions.So they are long term investors not by choice but by force.
Now the discussion going around in the market circles and the media is how long the market can keep falling? How much a DLF or Punj Loyd or Reliance fall? I am giving here some statistics for you to understand how much stock prices can fall, especially after the bull market peaks with crazy valuations for any sector or for the market as a whole.

If you take the last 20years, the 1st major bull market we saw was in 1991-1992 - the Harshad Mehta(BIG BULL)Bull market.Cement companies were the heros in that bull market.

1.ACC: The share touched a peak of Rs.400.97(adjusted for Bonus,rights and split)in April 1992 and then fell to touch a low of 84.47 in June 1993 - a fall of 78.93%
That 1992 high was crossed again only in July 2005 - a long wait of 13years.

2.GRASIM:Touched a high of Rs.700.00 in April 1992 and then kept falling for the next 7yeas to touch a low of Rs.113.00 in April 1999 - a fall of 83.85%

3.MADRAS CEMENT:Touched a high of Rs.1200.00 on October 1994(the mini boom when FIIs were allowed to invest in indian stock market) The share touched a low of Rs.287.00 a fall of 76.08%

4.INDIAN RAYON(now Aditya Birla Nuvo)Touched a high of Rs.493.00 in August 1994 and a low of Rs.43.50 in May 2000 - a fall of 91.17%

5.INDIA CEMENT: Touched a high of Rs.169.19 in September 1994 and a low of Rs.12.85in April 2003 - a fall of 92.40%

Now let us see the I.T bull market and its aftereffects in 2000-2001.

1.INFOSYS: The share touched a high of Rs.1726.61 in March 2000 and then crashed to a low of Rs.269.50 in October 2001 - a whopping fall of 84.39% for one of the best companies in India.

2.WIPRO: The share touched a high of Rs.1633.32(in absolute terms this Rs.10/-face value share touched Rs.40000/- duering its peak)and crashed to a low of Rs.131.87 in May 2003 - a fall of 91.92%

3.SATHYAM COMPUTER: Touched a high of Rs.727.50 in April 2000 and a low of Rs.55.50 in September 2001 - a fall of 92.37%

And remember except Infosys none of the other I.T companies crossed their all time highs after 7 years till today
Also remember, that the index normally corrects from the peak of bull market to the end of correction anywhere between 40 to 60%.So from the high of 21200 touched in January 2008, it can correct down to 12720(40%) or 10600(50%) if not 8480 which a 60%correction for the sensex from its peak.

So have these points in mind and dont be in a rush to buy shares in Infrastructure, power,real estate and construction sectors as they still have got lot of room to correct.ALL the best.

DOESES OF OXYGEN FAILING???????

The expected sequence of events are unfolding in their own classic way.First the relentless easing of interest rates,easy liquidity,over leverage leading to heating up of asset prices and that leading to over optimism and greed.While it is understandable that an individual or an Institution takes reasonable risks in the money making exercise, it is indeed suprising and sometimes shocking that so called or perceived big and safe ones resort to excessive leverage or risks far beyond any permissible levels of imagination.It is more so shocking to see that such large institutions resort to the most common practice of individuals who are in the last stages of becoming bankrupt or insolvent known as "Teaming and Leading" - an exercise of borrowing from one and returning to another to keep floating.And also these large instituions resorted to borrowing for short term to meet the short term and in some case long term committments - a must no by any prudent money manager. So as the supply of short term money dried up these institution chock and suffer massive attacks like run on the bank and/or bankruptcy.It happened in the case of the bank"NORTHERN ROCK" in England last last year and it may well happen to"BEAR STEARNS" in U.S sooner or later.And I feel this "Bear Stearns" case is just the beginning of the bigger failures we may see in the U.S banking system which will have its logical contageon effect in world financial markets.
Coming back to our Indian Stock markets, With economy slowing down,corporate profits likely to shrink in the next few quarters and valuations still not cheap in any of the sectors that propelled the market to dizzy heights, the correction is far from over.Not many may remember that after the 2000-2001 ICE(Information,Communication & Entertainment)meltdown, even the topline shares like Infosys,Satyam and Wipro corrected 70 to 80% from their peak prices and the index corrected more than 50%While many may have stopped buying for the time being now, many will start selling from nowon only,first the liquid ones and then the others. With hardly 10 stocks hitting new highs(52week) and 300 stocks hitting new lows, we are clearly in for a prolonged bearish phase if people still dont want to call it as bear market yet.With these local and global factors,I will not be surprised to see Sensex around 12200 to 12500 and Nifty around 3700-3800.You may not be able to buy stocks at their lowest prices but certainly you can buy a lot of them at 20-30% lower than current prices. You may not be able to time the bottom but you can surely potpone your buying for the time being.Best of Luck!!!!