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My Stock Market View (and a Prediction) for 2013

Readers who follow me of Facebook or Twitter know that I’ve been sounding a tad bearish in recent times.

Some have ever termed me a permabear* for my thoughts on the near term future of the Indian economy and the stock market.

While I am not into the game of predicting the future of stock prices – near term or long term – I occasionally speak of concerns when I see them.

These are my points of view and not predictions. And this time isn’t any different!

These days, I’m hearing a lot of predictions about a beautiful and steady rise for the Sensex in 2013. I do not want to insult you with another prediction.

But whether it’s about the economy or the stock market, I personally see 2013 to turn out bad, or at least worse than 2012.

Stock prices on steroids
The stock market, as I see it now, is simply behaving like a drunkard who is high on an overdose of alcohol (easy and cheap money).

While it continues to climb up the stairs in this heavily drunken state, I am fearful that it will take a deep dive. As for the exact timing of this dive, I won’t pretend to be sure of that.

My simple premise for caution is – that which cannot be sustained will not be sustained.

As an investor, it is important for you to understand that we live in a world that is based on economic structures that are now unsustainable.

We are passing through the biggest bubble (call it a grand Ponzi scheme) in the history of the world – a bubble in government debt, asset prices, and promises.

These bubbles are all going to going to collapse, in one way or another.

But it’s not the end…yet!
Just because things are unsustainable does not mean the end of the world for you and me.

It is just that our world will change. Our job is to make sure that we manage the transition well. As the bubbles collapse, our job is to make sure we are not in the vicinity of ground zero.

And how do you do that?

Fortunately, the answer isn’t difficult.

Stick with quality, and buy with adequate margin of safety. And if you cannot find quality stocks with adequate margin of safety in this environment, have patience and wait for the right pitch. It will come.

For some, this would sound too simplistic and unbelievable…very much like a doctor’s effective (yet unbelievable) advice to take just an aspirin (instead of five complex sounding medicines) for common cold.

But the basic rules of sensible investing aren’t difficult. Practicing them with integrity is.

I am not a permabear!
Before you start thinking that I am really a permabear, I suggest you read a couple of my posts (here and here) that I wrote sometime in December 2011…the time when stocks were about to go down the drain and analysts were shouting “Sell!”

A couple of analyst friends in fact called me then and asked me to justify my “bullish” stand on stocks. I told them, “I have stopped justifying my views ever since I’ve quit my job! It’s my personal view and I stand to be proven wrong. It’s upon your to take it or leave it!”

You see, everyone is entitled to his or her view. What I’ve written above is my personal view and the reason I have this view is because this will help guide me in my investment decisions in 2013 and beyond.

Have a view…then act by it
It’s important to have a “personal” view when you are investing in the stock market. It’s bad to predict things or believe others’ predictions because most predictions never come true.

But it’s important to have a view and act by it (with the flexibility to change it as situations change).

So you may have a view like…

  • I see a 70% probability of a fall in stock prices in 2013, so I will invest new cash cautiously
  • I see a 90% chance of a deep stock market crisis, so I will work towards my asset allocation accordingly
  • I see a 60% probability of overall markets giving a 25% return on 2013, so I will invest a large part of my money in stocks than bonds.

There are a couple of important things about having a view:

  1. Think in terms of probabilities. In fact, the most reliable forecasters think in probabilities. Predicting the Sensex will certainly hit 25,000 in 2013 is ridiculous. On the other hand, saying there’s a 70% probability of the Sensex hitting 25,000 may be a prediction worth paying attention to. These are vastly different calls.
  2. Ignore the Sensex nonsense! The top ten stocks by market cap form almost 70% of the Sensex market cap. So a large part of the move in the Sensex will be determined by these ten stocks only. These ten stocks cannot be used as a base to predict how the overall market and your own stocks will perform in the future.

One prediction
The eminent constitutional lawyer, (Late) Nani Palkhivala once said, “Human nature is human nature and human nature would continue to remain human nature till human nature remains human nature.”

True to my human nature, I would like make a prediction for 2013, and with 90% probability.

My prediction is – All other stock market predictions will be wrong! 🙂

How can I say this with 90% probability? Well, I have Ms. History sitting by my side making this prediction.

Here’s to a happy, safe, healthy, yet most unpredictable 2013.

* A permabear is somebody who is always negative about the future direction of the markets and economy in general, no matter what.

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.


  1. Thanks Vishal for you predictions!
    I pulled out the P/E,P/B and DIV Yield for S & P CNX Nifty at the beginning of the each year.
    I do not know if the EPS is growing at 19% but it gives me a feeling that the valuation is already on the higher side.

    Year P/E P/B Div Yield

    2013 19.03 3.19 1.37
    2012 16.79 2.77 1.63
    2011 24.57 3.88 1.01
    2010 23.31 3.67 0.94


  2. Reni George says:

    Hi Vishal
    Good Morning to you and wish you a happy new year,wish your predictability is right at full 100 %,then you will have a chance to allocate some cash into the stocks that you wanted to buy,but was unable to,due to absurd valuations.LOL did not know that we had a shankar sharma,with us.
    Last month was pretty good for me,as i was able to cut out lot of noises and could see and justify some of the actions that i have taken in terms of booking some profits.

    These is a good platform where the the permabear and permabull are of the same view,hahaha.
    As we had talked earlier,the ground realities does not justify a market above 5000 for me,in terms of Nifty.
    Recently i had some talks with HR guys of companies like Siemens,ABB etc,they were petrified as they had orders from the upper brass to remove the non-performing 5 %,in clear terms layoff,orders were not forthcoming.
    So its just cheap money,they are trying to push the inevitable.

    so get your trunks ready with cash,be ready for fishing,you are going to to get a nice watery environment,

    Thanks and Regards
    Happy Investing

    Reni George

  3. As Mr Buffett rightly said, it is better to be fearful when others are greedy and greedy when others are fearful. 🙂
    My personal take is similar to yours. I am not very confident about 2013 due to two reasons –

    1) Current P/E, P/BV & DY multiples of Indian markets are not cheap by historical standards.
    2) The probability of getting 2 consecutive positive years is much lesser (~40%) than that of not getting it.

    These 2 statements have been results of a small analysis which can be found here.

  4. ‘Assign a probability to an outcome and plan accordingly’ seems a very reasonable thing to do.
    I would assign a 70% probability that post elections (once populism is done with), the hard realities of excesses of transfer (of cash) from haves to the have nots (including the well oiled corrupt mechanism in between) have settled, will Mr Market take a reality check and most likely trend downward.
    A big fall to me also seems imminent since value of paper money has been debased quite a bit (refer Gold prices) and now excesses have built up in Govt debt by printing more and more.
    It may be good to plan for an outcome when you protect your downside (i suggest debt where you can still get 9% carry), be ready with cash which can be deployed in valuable companies at appropriate times.
    Consider buying Gold as well. A prediction for Gold is USD 2200 an ounce by end of 2013 ! and the rupee is unlikely to appreciate beyond 52 although the rupees chances of sliding down seem more compelling. This would translate to about Rs 41,000 per 10 gm and in retail another 10% higher. Gold ETF may be a better instrument.

  5. Harshad Parulekar says:

    Hello Vishal,

    i am unable to understand what exactly has changed in International macro economics since last two years. As non of the major issues related to Europe or US for that matter have reached to a workable solution.

    It confuses me even more when so called Gurus of Indian market speculate about sensex touching 25k+ till coming Diwali.

    As said by “Warren Buffett ”

    “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”

    Time has come to take our profits home.
    Great post as always .

  6. It is time to review the portfolio and tweak the asset allocation. If you have been investing systematically in quality funds and stocks, with the spurt in index/stocks the portfolio value would have also gone up and so you have a chance now to do your asset re-allocation. Although index has reached new levels there are many index and non stocks still at very low level compared to the peaks. So don’t just go by index values. Look at individual stocks by their valuation and partial profit booking always helps. If you have to achieve your long term goals, you cannot be out of equity altogether. Irrespective of index is at 25000 or 10000 and even if you feel the market is over valued, still maintain your investments for your long term goals in quality funds. You may decide on the amount of investment according to your risk apetite and asset allocation. Conserve cash (by investing in Debt) so that to re-invest if there is some serious fall in the market, but this must be in addition to the regular investment to increase your over all returns. Do not stop your investments altogether, no one predicted Jan 2008 Peak and NOV 2008 fall and then Nov 2010 peak and Dec 2011 fall or even Jan 2013 peak. So, no point waste time predicting things. The only thing that we can control is asset allocation. It is the time to sell all those bad loss making stocks/thematic funds and conserve cash (if you want to move to cash) to do your asset allocation.

    In 2005/2006 when i began serious investing in funds, everyone said that index is at peak level and at that time the index was only at 6000 (but that was a peak at that time) or so and in Jan 2008 index touched 21000 (new peak). Today, we say index is at 20000, if we are lucky may be index will be 60000 in next 3/5/7 years (just joking, but not impossible). Let’s not waste time predicting the future but let’s work on how best we can minmize the risk and still meet our long term goals.

    By the way, I began investing systematically since April 2006 and today my mutual fund portfolio has given me an annualized average return of 15%. It is only because of systematic investing and asset allocation, I could achieve a decent infaltion adjusted return. I still continue to invest irrespective of index value as per my asset allocation towards my long term financial goals.

    • That is a very good performance Ajay. I agree with your point on ‘lets not try to predict the future.’
      I am reminded of Buffet “Don’t save what is left after spending, spend what is left after saving”.

  7. Anoop Sharma says:

    While reading your post and reading other popular articles on probability, as a layman in probability, i have a question vishal. How can i arrive at a suitable probability and how to quantitatively use probability estimates? for eg. how to arrive at a probability of stock market crashing? Because, in some of the behavioral finance literature i read, it said we are totally clueless when trying to figure out probability. So this mean the probability figure which i intuitively expect ought to be incorrect. So if i feel probability of stock market nosediving is 70%, i have reached this figure intuitively (may be because of biases, may be anchor bias in this case). Also, probability is no. of favorable outcomes divided by total number of outcomes, how to calculate the numerator and denominator in this case (stock market crashing) which i think is necessary to avoid any case of biases.(based on my little understanding of behavioral finance)

    Also, if i arrive at a probability estimate, how to use it quantitatively? Say i expect 70% probability of stock market crashing. Do i go short 70% and long 30% to use an example i can think of?

    • Hi Anoop, that’s a great question! The truth is that we humans tend to build the most risks when we discuss probability randomly, like saying 10% chance of a market crash etc. There are statistical formulae that can help you calculate probabilities. But what I personally do is to assume probabiltiies based on a combination of the following three things:

      1. Overall business environment
      2. Valuations
      3. Impact on stock prices if things go wrong

      While 1 and 3 are subjective, as an investor, I need to understand the basic macro environment (plus valuations) to assume a certain level of probability.

      As for your second point, the way to incorporate probability into your investment decisions is by way of asset allocation between asset classes, and not just within equities.

      I hope this makes sense. Regards.

      • Anoop Sharma says:

        Thanks, i shall try to build my probability model based on yours. Actually it is interesting to use fractal model by not only using probability only within asset classes but across asset classes..

  8. Anoop Sharma says:

    Thanks, i shall try to build my probability model based on yours. Actually it is interesting to use fractal model by not only using probability only within asset classes but across asset classes..

  9. I too think that the world is sitting on a bubble of enormous proportions. And all central banks are working overtime to sustain this bubble, as the world order will change when this bursts (especially our admiration for all things western). 500 years of dominance will end, and that will not be palatable.

    As you mentioned, small timers like us can only do a few things. 1) Keep away from ground zero (i.e. do not depend for livelihood on the big banks, wall street, dalal street, big insurance etc). 2) Invest in diversified assets (financial and others). 3) For stocks, invest in quality companies with a big margin of safety whenever that is available.

    And for those of us who are capable of this (since this is the hardest part), build good businesses that provide good products and services to those whose pockets are not too deep. For those of us who are not good enough to build such businesses, invest in them.



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