2011-12 was a year of negative returns on equity assets. The sensex lost close to 10.5 % over the year. Negative years will always be compensated by one bumper year of profits. But, that may not be soon enough. Usually, markets move through long years of lull trading when they head nowhere and stay within a range. Traders who have little patience tend to lose capital during these phases and quit the markets in disgust.
To put things in perspective, we have had only one year of positive returns viz 2009-10 in the past four years. Even that year was a rally from a market low and investors did not have absolute gains. All they did was recoup some of their notional losses. From the market high of 2008, the markets have been only trading lower in a broad range. Is this phase likely to end soon? Predicting the end of a prolonged bear phase is really not a productive exercise. Those who try to predict it and then time their investments mostly end up being academic procrastinators and bad investors.
A better approach would be to view this phase as an extended opportunity to allocate capital and to maximize allocations to equity when nobody wants to buy it. What if the markets trade even lower than current levels? In our view, they can only get even more attractive if that happens. Your patience may well get severely tested in the current year. But, remember that if you stand the test, you will emerge on the winning side.
