Are we headed to another stock market crash like the one in 2008?

Let’s analyse the historical data of Indian Stock market for last 22 years to see what really happened. There has been two severe crash Indian stock market witnessed, one in 2000/01 which was caused by Internet/IT stocks, the dot com bubble was burst.

Another one was in 2008, caused by global financial crisis. If we observe the data, there are two similarities between 2000 and 2008 crash. Before the 2000 crash, there was a sudden huge interest among IT stocks, people went crazy and started buying IT stocks without giving much importance to valuations.

Many IT companies were zooming like anything during the period of 1998 to 2000. NIFTYIT Index gained more than 3600% within 3 years of time.

We all know that PE ratio is widely tracked by everyone and investors do make certain decision based out of it. But there is one more ratio called PB ratio. Here’s the PB ratio of Nifty IT index, crazy valuation. PB ratio was more than 80. People did not care about the valuation, as the stock price kept on roaring higher and higher.

Look at the madness, the stock price of Wipro gained more than 10,000% between 1998 to 2000.

the stock price of Infosys gained more than 4,000% between 1998 to 2000

the stock price of Satyam Computer gained more than 9,000% between 1998 to 2000

Any companies that deals with IT went only up, a new era of business, Internet is going to be the future, Indian IT companies going to be super star, blah…blah…blah… but what happened after that? boom! Big crash, all IT stocks went down crashing more than -85%.

Before the market crash of 2000, there was IT bubble, valuations sky rocketed and eventually ended up with huge crash.

Similarly, which sector played a vital role in 2008 crash? It was Real Estate sector.

Look at the price appreciation of Unitech, it moved more than 8000% between 2006 to 2007.

The valuation of Real Estate sector was so high, PB ratio of Nifty Realty index was greater than 80 which eventually crashed in the year 2008.

During the crash of year — 2000 and 2008, there was one sector that was gaining very high momentum, leading to sky rocketing valuations which was visible in PB ratio of the respective index.

In order to find, if we are really heading for another crash, check out which sector is gaining more momentum and going beyond valuation. That should be the sign of warning, check if the PB ratio of the respective index is moving higher and higher, if you find such similarity again, we can be sure that we are heading for another crash. With current data & metrics, we are no where near bubble territory, there is a long way to go before we expect any crash.

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Now its which sector?

Btw I dont think so, some crash will come but not like 2008

Maybe Nifty can go max till 9000

I am sure we are heading for the crash.

Euphoria/ hype is around “Do nothing & make loads of money” Algos. Proof below

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So, let it crash.

Its a good thing.

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A crash is built based on a bubble, there is no sector in Indian markets that are considered to be in bubble territory. Just because Index is near all time time, doesn’t mean that it has to head for a crash.

PSU banking sector is in a bubble and no one is seeing it.

Next crash in indian markets will be because of PSU Banks.

We don’t know when it will start, but it is surely going to happen.

No one is seeing it because, there isn’t any bubble in PSU Banking sector.

A bubble occurs when investors put so much demand on a asset that they drive the price beyond any accurate or rational reflection of its actual worth

PSU Banks are no where near a bubble, in fact it has been in downtrend already.

Look at the valuation of Nifty PSU Bank index, it is comparatively undervalued.

Exactly whats happening with PSU Banks for sometime now.

bubble could have burst or about to burst.

Govt are working hard to not make it happen, but its inevitable.

Can you justify this and the graph that follows, they must be wrong if there’s really a bubble?

He is showing charts and telling you there is no bubble in PSU banks.

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Here’s the Private Bank vs PSU Bank valuation.

Private banks are trading at a PB ration of > 3.5 where as PSU Banks are trading near PB ratio of just 1.

image

As i mentioned earlier, none of the sectors are in bubble with regards to Indian markets.

Are the NPAs not bubbling in the PSU Banking sector?

you don’t need charts to show you there is a bubble.

The NPAs are bubbling/boiling without a doubt. But the question we all are asking is if the stock prices is reflecting the true situation or not. And according to the OP there is no bubble in stock prices.

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Those are already factored in the stock price of PSU banks. You seems to have Hindsight bias, claiming that PSU Banks are in a bubble without backing it up with any data.

But the fact is, there aren’t any bubble.

@KirubaKaran

so , you mean to say NPA situation is not as bad as it looks and PSU banks will not crash the markets in coming months/years?

I think it doesnt meet the conventional definition of a bubble in stock market -

  1. Prices of said sector rising like a mad horse without any correction - This is far from being true about PSU Banks

  2. Due to sector bubble bursting, FIIs and big hands pull off their money aggressively and for a longer timeframe - If most PSUs bust out also, FIIs and DIIs will laugh it off and keep betting on their HDFC, RBL, KOTAK horses, no one would care a hoot

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PSU Banks are bad. Everyone knows that including the government. But instead of trying to figure out a permanent solution that works in the longer term, our government is trying to pass a FRDI bill that protects the banks in case of crash.
I still don’t think it is big enough for a crash. It is big enough only to cause disruptions in middle class people who no one really cares about.

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true, well said

Even if there are no triggers with respect to bubbles in our market, the Indian market may crash because of the ongoing Trade War as well as currency concerns or other war-like situations concerning mid-east or in fact it could be crashed because of the ganging up of our opposition parties with rogue nations (esp Pakistan) to show Modi in poor light.

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Yes it is more likely to crash due to the latter reason u mentioned, for trade war i still feel its just a timepass wont do much

Also what would be definition of crash? Is Nifty 9500 a crash? or 9000 or 8000

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