New highs, old concerns: Deepak Shenoy revisits 2007 lessons from stock market rally

Indian stock market continued its relentless upward trajectory, with Sensex and Nifty 50 hitting record highs on Monday. As the market sees remarkable performance, the discourse among Dalal Street analysts remains as divided as ever. While some market participants are enjoying the ongoing rally, some analysts issue stern warnings about potential overvaluation and the risks ahead. This was highlighted in a recent exchange on micro blogging website X (formerly Twitter), where Deepak Shenoy, founder and CEO of Capitalmind, responded to a tweet by Shreenidhi Padithaya, Research Head at PINC Wealth.

In a post on X, Padithaya underscored the persistent narrative shared by certain fund managers and listed out some common warnings these market veterans have been sharing, particularly targeting younger investors. The warnings ranged from predictions of massive 70-80% correction in smallcap and midcap stocks to criticisms of the overconfidence among newer investors.

“New weekend dialogues from few fund managers who have hardly/barely/didn’t even beat Nifty 50/BSE 200 benchmark returns from last 3,5,10 years and since inception: “Let them learn the lessons the hard way"; "We have warned youngsters too much, but they refuse to learn"; "SME's and smallcaps will lose 70-80% of their value ONE DAY”.... Every weekend you get to see these kind of messages from so called saviors (SUPERMAN,SPIDERMAN,IRONMAN) of retail investors,” Padithaya wrote.

In response, Deepak Shenoy offered a historical perspective from 2007 - a time when similar concerns were rampant. He noted how market professionals’ warnings and frustrations have remained consistent over the years, despite the ever-evolving market dynamics.

“The more markets change, the more they are the same. The same warnings/anger from the professionals. The same giddy heading upwards of the markets. The screams of overvaluation,” Shenoy remarked.

A Historical Perspective

Shenoy referred to the 2007 period, just before the global financial crisis, when Sensex was at 20,000 and the Nifty 50 was near 6,000 levels. The period was characterized by euphoric market conditions, with indices climbing to new highs and a flood of retail investors entering the fray. The Indian stock market’s rapid upmove sparked concerns about overvaluation, leading many analysts to issue raising concerns similar to those heard today.

In his post from 2007, Shenoy reflected the mood of the time, where there was a clear tension between the optimism of a bullish market and the cautious warnings from experienced market participants.

At that time, Shenoy drew inspiration from Jagjit Singh’s ghazals and connected the timeless wisdom of the lyrics to the investing world. He highlighted how some investors missed out on the market's surge, dismissing it as “overpriced” when the Nifty was at 4,500 and the Sensex at 16,000. Shenoy observed how some stocks, once deemed irrational, soared while others left their holders frustrated as they lag behind the market’s new highs. 

His point was clear: sometimes, being too focused on “value” can cause one to miss out on opportunities.

Using Jagjit Singh's poignant lyrics, “Hoshwalon ko khabar kya, bekhudi kya cheez hai,” he likened this to the lack of understanding among those who didn’t ride the wave. And as the frenzy of the bull run eventually fades, he quoted lines from another ghazal, “Tum chale jaaoge to sochenge, Hum ne kya khoya, Hum ne kya paaya,” suggesting that when the dust settles, investors will reflect on what they gained or lost.

His allusion to the famous line, “Aaj pine de, aur pine de; Kal karenge hisaab ai saqii,” (Let me drink today, we'll settle the account tomorrow), encapsulates the sentiment of indulging in the market’s exuberance while being aware that a reckoning might come later.

Shenoy’s reflection is a reminder that market cycles are an inherent part of investing. The warnings issued by market veterans are often rooted in their experiences from past cycles. Yet, despite these warnings, markets continue to rise and fall.

A crucial point to note here is that even though each market cycle is different, the worries and reactions of investors are often the same. Concerns about stocks being overpriced, criticism of new investors’ excitement, and eventual market downturns all follow a familiar pattern.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.