Stock markets around the world are not performing very well this year and the Indian equity market is no exception. Just today, the Nifty was down by 1.7% and closed at 7309.30 points, a level not last seen in June, 2014, just after Narendra Modi was sworn in.
The drop in indices has not been a recent phenomenon though and the market has been on a downward trend over the last one year. While looking at the Nifty data, I came across two interesting charts.
The first one is the movement in Nifty since 01st January, 2015 till date, when the market saw gradual erosion in its value with disappointment over the performance of the Government and a variety of external factors including the crash in commodity prices and slowdown in China.
Compare this with the performance of Nifty in the year preceding that i.e. in 2014 when buoyed by the likely and then actual victory of National Democratic Alliance (NDA) in May, 2014, the market had shown significant gains, in the hope that the new Government will unshackle the economy through good governance and a slew of reforms.
Notice the almost linear way in which the market moved up in 2014 and came down in 2015. The R-squared value is very high in both the cases, indicating a surprisingly strong linear relation with time, albeit in opposite direction in the two years. The downward movement in 2015 was, however, much more erratic and much less sharp compared to the relentless upward movement in 2014. Going by the trendline of 2015, the Nifty shall end up around 6800 points on 31st December, 2016 (although only a fool will believe in trendline when it comes to stock markets).
Again, these are not overly complicated or particularly illuminating plots. The intent is just to show, through two simple charts, how, in the course of a year, the fortune of a market may just reverse its course and how it does not take long to turn irrational exuberance into bitter reality.