Indian markets have developed a cyclical pattern and have been peaking out every eighth year at least on the previous three occasions starting 1992. The BSE Sensex has peaked out during 1992-2000-2008 in a well established pattern of time cycle as follows :
Year Sensex Peak
1992 4,285
2000 6,150
2008 21,206
A closer look at the following long term chart of the Sensex indicate similar patterns having been formed during the previous occasions. The internal structure shows that during each period four intermediate peaks (A-B-C-D) were established before the final peak, which led to the massive correction and a prolonged bear phase in the market.
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| Sensex- Monthly Chart |
During the previous occasion, the actual bull market started from 2005 after the breakout and lasted three years till 2008.The current bull phase which has started after a breakout in 2013 may continue for three years from 2014 to 2016, if the time cycle holds good this time as well. We have already achieved peaks A-B-C until now and the next peak (D) is likely during 2015. Does this mean that the market may peak out during 2015 ??
This may be possible as markets seldom move in a linear fashion and tend to oscillate around time cycles. An up move till 2015 may be justified as the Indian economy recovers and achieves higher growth rates of 6-7%. This may lead to P/E expansion resulting in the market hitting the higher band of the historical P/E range.
Post 2016, the economy may struggle to maintain the same growth rate on a higher base and could stagnate, resulting in market cooling down till the growth rate catches up once again. This may again repeat the eight year cycle which we have been witnessing in the past.
