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Discussions » Stock Markets » Could India's markets crash and never recover, the way Japan's Nikkei did in 1989?

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Ashwini Anand Commented
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Could India's markets crash and never recover, the way Japan's Nikkei did in 1989?

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Ashwini Anand Commented
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Here are my initial thoughts:

1. India is far from developed even today and therefore has tremendous room for sustained growth over the next 50+ years. India's nominal per-capita income is ~1500 USD p.a. If India grows at a CAGR of ~7% over the next 50 years, its per capital income will be 44,185 USD, which is still less than USA's current per capita income of ~46,000 USD. So, plenty of room for sustained growth. Remember, when Japan's stock markets crashed in 1989, it was a developed economy with very high levels of per capital income and human development index.

2. The Nikkei's P/E in 1989 was well over 100 (1). The Sensex has consistently been trading between 15-25 X its trailing earnings over the last few years. We will have to start worrying about a bubble only when the Sensex's P/E crosses 28-30 (given that the expected long term growth rate is healthy).

These are 2 reasons why I think it is unlikely, but I'd love to hear what you guys think.

1- http://www.economist.com/node/9370662

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