When Sensex reaches 2014 levels, what should you do?

Updated At: May 23rd 2023

These are unprecedented times and we hope that you are taking all the required measures to keep yourself and your loved ones safe. Financial markets also reflect the gravity of the situation and have been dropping like falling knives.

We have been getting a lot of queries and thought it’s an opportune time to share some dos and don’ts.

My portfolio is in a big loss, should I exit?

If you had a sizable allocation to equity in your portfolio without the cushion of debt then you are likely staring at 40%+ loss in your portfolio. We understand that these can be stressful times. A second opinion in such times may help you calm the nerves or take an opportune action to protect against further losses.

On 23 March, 2020, the Sensex fell by nearly 4,000 points as the country went into a lockdown to prevent the outbreak of Covid-19. Should you keep investing?

Has it bottomed out? Does this market offer good investment opportunities?

Since Feb 24, Nifty50 (-36.64%) and Dow Jones (-31.4%) have crashed and the current Sensex crash is breaking its own records. While investors have lost wealth, is there an opportunity hiding somewhere?

Bellwether stocks like HDFC (-35.1%), TCS (-22.8%), L&T (-42.7%) and RIL (-38.3%) have fallen although their business looks strong as ever. Three of these are among India’s most valuable companies with no adverse impact from Coronavirus.
Even as the economy was slowing down last year, the Sensex and the P/E ratio kept rising, something that puzzled many industry watchers.
As a piece in BusinessLine says: Sustained bull markets in India over the last three decades have always been supported by a sharp earnings pick-up...While the Sensex registered a 13 per cent CAGR between December 2011 and December 2019, earnings of Sensex companies grew at barely 6 per cent a year.
Since the start of the year, the P/E ratio of Nifty50 has dropped from 28.33 (1st Jan 2020) to 17.15 (23 March 2020), a drop of 39.4%
Currently, the Nifty 1year forward P/E valuation (13x) is below its long-term average of 15x.

The relation between ROI and P/E ratio is obvious from this table.

P/E Range	3Y returns	5Y returns	7Y returns	10Y returns
Less than 12	38.7%	29.2%	22.3%	17.8%
Between 12 & 15	30.7%	25.5%	19.2%	16.3%
Between 15 & 18	17.1%	17.5%	16.2%	14.5%
Between 18 & 21	9.3%	10.2%	12.1%	11.7%
Between 21 & 24	4.4%	7.5%	10.5%	11.1%
Between 24 & 27	-4.2%	3.8%	9.2%	9.6%
Above 27	-7.9%	1.5%	8.5%	8.1%