Long-haul investors play a heroic supporting role

The PE ratio of a stock market index going below its 10-year rolling average could be a 'buy' signal if this metric's long uptrend was driven mostly by profit prospects and patient capital

- 

stock market 'correction' implies a sobering up of investors after a heady uprun in prices that overshot its rational limits. The slump in Indian indices over the past five months, a long slide unseen since 1996, has not been as deep as what we saw after crashes triggered by the West's financial crisis of 2008 and the global outbreak of covid in 2020. As reported by Mint, the latter were far worse. Both those scary episodes saw the NSE Nifty-50 index fall so much that more than double the investor wealth was wiped out—as a fraction of the total—than in the five months from October to February. And while those price slides left investors edgy, both eventually turned out to be perfect points of market entry.

A long view, thus, would urge people to stay invested. However, since we face other kinds of headwinds now and mustn't simply extrapolate the past to the future, whether the market has 'sobered up' requires us to check if prices that went too high are reasonable again.