Four reasons to cheer the market fall

Attribute it to the Finance Minister imposing a long-term capital gains tax on equities in his budget. Or blame it all on the US Fed and hostile global cues. Whatever the reason, the Indian stock market has launched into a long delayed correction in the week following the budget. Mid and small-cap stocks, in fact, had started to decline much ahead of the Nifty and the Sensex. While the fall has triggered quite a few rants and memes in the social media, if you are a long-term investor in Indian equities, you should really be cheering if the market sustains this fall. Here are four reasons why. Blowing off froth Fund managers may not put it in so many words. But Indian markets in the past year had gone into a bubble zone. The 10 year average price-earnings multiple for the Nifty 50 is about 18.5 times on a trailing basis. But in the last week of January 2018, just before the budget crashed the party, the Nifty 50 PE had topped 27.8 times (26.4 times on the Sensex 30). That's the kind of valuation at which previous bull markets like the one in 2007-08 and 1999-2000 topped out. The problem was even more acute for mid-cap stocks because their PEs were at over 33 times at January end. Now, fund managers and market playe

This article was originally published on March 29, 2018.