The Sensex may have given 19% returns over 33 years, however it may not have given 19% in any particular year! This is fairly simple – the standard deviation is quite high, and good years are followed by bad years. Simple.

In the year 2011 the sensex’s performance looks bad because of the poor performance of Reliance, L&T, Infosys, Icici, Sbi….and was cushioned by HUL, ITC,..etc.

Unfortunately for sensex watchers Reliance and Infosys – both very good P/E managers – and perhaps EPS managers too – seem to be in their mid life or descent. This means that even with all their media management, the market’s respect for these companies (read PE) is not likely to increase in the near future. Infosys is in a mature industry with not too many entry barriers and Reliance, well, is Reliance!

Icici bank does not have a single promoter – this means there is no single person ‘managing’ the p/e and its EPS is not really respected. The NPA of Icici bank and SBI will always be a worry for the market – and hence the p/e ratio is likely to be below the industry average. L&T the story is somewhat similar – and the biggest shareholder block could be the employees including the Managing Director and Executive Directors.

Again L&T’s price earning ratio is not very easy to sustain, and it is also a company on its decline rather than a company on its growth. Its finance arm is not likely to show any great performance in the market – and this will make listing its software subsidiary difficult. So there is no great value capture by L&T also.

Given the problems that Reliance, Infosys, L&T, Sbi and Icici bank face, it seems to be difficult for the Sensex to give some fantastic run away performance.

However markets are supposed to surprise or shock us. Clearly there is no trend in these nos…

47%, -52%, 81%, 17%, -24% which are the returns on the sensex in the past 5 years from 2007 to 2011………


Now to the more important question – what will the sensex do in 2012?

Well frankly, I do not know. I am brilliant enough to know that I do not know.

However, it could tank another 18% – and will cause pain to people doing SIPs for the past 4 years also. Or it could just come down 3-4% but in a very painful process of going nowhere on a month to month basis – giving nominal returns on SIPs.

Of course it could go up 24% – just wiping out the 2011 losses – or it could go up 40% and preparing for a fantastic fall in 2013! All are possibilities – and all of us will know with 100% accuracy why it did what it did. However many of us know that we do not know. The others are predicting.

Remember the market does what the market has to do – fluctuate. You have to do what you have to do – keep your head on your shoulder. Not easy, but very profitable!


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  1. “I am brilliant enough to know that I do not know”. Priceless words which many people fail to learn at all. Happy new year 🙂

  2. As Socrates said “Oracle chose me as the most intelligent person because I know that I don’t know anything”

    Wishing you a very happy new year Subra Sir.

  3. Subra Sir

    Avery happy New year to you and all lucky ones foloowing your blog.

    Have 2 doubts if you may advice.

    1. HOW & WHEN to judge a non performing MF and to get out of it?
    2. Your view on the midcap and smallcap funds or stocks in future?


  4. We all don’t know a lot of things. But at least you (& even me) know that we don’t. One classic example of people not knowing that they dont know is their direct dabbling in equities based on any random person’s advise and confusing between a good company and a good equity trade.

    These days, lots of people know that equity is going to go down, almost everyone and their aunt (Subra’s term 🙂 ) knows that real estate in Mumbai never goes down, and everyone and their grandmothers know that gold can never crash (So what if it is down 15% from peak in dollar terms). For the less well-informed like me, my equity SIP continues. No gold and real estate for now.

  5. Subra Sir,
    I always wondered why you always talk about investing in equity and not about gold or real estate. You talk about “gold bubble”, “real estate bubble” but never about “equity bubble”. I agree that equity market are more transparent and more efficient however at some point of time the valuations are crazy where investors should be cautious (like 2007).
    If investor cant understand/justify valuation of asset class then why to invest in that asset class? It is like Hindi proverb “neki kar, dariya main daal”.
    I also have wondered why people try to correlate GDP with market cap. market cap is function of profitability and not revenue of the company.

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