Indian Share Market Maturing ? Take a hint from Mr. Rakesh Jhunjhunwala

In an interaction on August 23, the Warren Buffett of Indian stock markets Mr Rakesh Jhunjhunwala said, until now we have had three bear markets. “In April 1992, the peak PE was at 63.1 per cent and we have the scam of Mr Harshad Mehta, then in 1994 we peaked at 42 times the earnings, then in December 1999 we peaked at 30 times the earning and had the Ketan Parekh scam. In 2008, we peaked at 21 times the earnings with no scams. While there was euphoria and mania, this time we have peaked at a far more reasonable valuation and are still below peak PE levels of the past,” he said. If I can read between the lines - this to me signifies that as the Indian market matures even further, the gap between manic reactions on both sides - euphoria and pain will narrow. Though the same cannot be said in terms of a time lag between the two - which may well signify an overall lower CAGR on a basket of share market investments. Future upsides will be capped at lower PEs than the previous highest achieved at the last peak before it plateaus out. Therefore, investors who really want to make money in the longer run will have to enter stocks only when it commands a lower PE (considering that previous PE highs may not be achieved) with of course other future prospects and parameters. To coincide with Mr.Rakesh Jhunjhunwala's nuances, a recent SEBI amendments for a stricter evaluation and pricing of IPOs and other capital issuances by existing listed companies is not only a very positive step in managing expectations at reasonable levels of the both issuer and the investor - it will also help in the markets coming of age.