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20% CAGR on equities will likely trigger significant correction in Indian markets: Shankar Sharma

market | Oct 11, 2021 5:16 PM IST

20% CAGR on equities will likely trigger significant correction in Indian markets: Shankar Sharma

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Indian equity benchmarks scaled new peaks on Monday with the 50-scrip Nifty index hitting the 18,000 mark for the first time ever, shrugging off weakness in other Asian markets.

Indian equity benchmarks scaled new peaks on Monday with the 50-scrip Nifty index hitting the 18,000 mark for the first time ever, shrugging off weakness in other Asian markets.

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Gains in automobile, metal, financial and oil and gas stocks pushed the market higher, though sharp losses in IT shares such as TCS and Infosys limited the upside. Broader markets also rose, with the smallcap index jumping more than one percent.
In an interview with CNBC-TV18, Shankar Sharma, Co-Founder of First Global said, “We are in the middle of a nice little bull market and I don’t see much reason for it to immediately reverse course. The market has refused to give easy trades. It has kept making it more and more difficult for people to get in if they were not already in. So, this is what a good strong market looks like.”
He expects the correction to set in only when markets reach 20 percent CAGR level.
“Correction can and should and will happen but in my lake of returns theory, the Sensex returns from January 2008 up until March 2020, which is 12 years was a measly 1.8 percent CAGR. Now, if you take the same starting point, the previous peak of 21,000 which the Sensex saw in January of 2008 before the whole meltdown happened and you come uptill today, your returns are still only 8 percent CAGR. India’s long term returns are 15 percent CAGR," Sharma said.
"My lake of returns theory tells me that the lake of return for Indian equity is still only half full. It is nowhere close to overflow levels. A correction or a bear market will happen only when the lake of returns gets to an overflow territory which is like a 20 percent return on a CAGR basis from Indian equities. So, we are nowhere close to overflowing the lake of returns. Therefore all this talk of waiting for a correction or are we going into a bear market is going to be largely proven wrong," he said.
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