What is the bottom level for BSE Sensex?

If you use CNBC to take long term investment decisions, this article is not meant for you. This article is strictly meant for medium to long term investors but not for traders. What is the bottom level for BSE Sensex? This is the most favorite discussion topic for investor community in these days. As long as you change your decisions according to short term Sensex movements, it is difficult for you to see bigger economic picture.

Sensex fell to 7,800 from 14,000 in few sessions after the collapse of Lehman brothers. Biggest problem with current crisis is the speed of the spread and depth of the impact. Another problem is “no one knows about the magnitude of the effect.” In this dynamic scenario, it is waste to talk about long term impact. So, let us talk about short to medium term impact and how investors react in panic.

In September-October, 2008: Sensex moved from 14,000 to 7,800 – ultimate panic reaction in recent time. It means Sensex commanded a valuation of just 9 in the extreme panic environment. We can take it as ultimate bottom level.

What are the future bottom levels for Sensex if it commands a valuation of 9?

1. Basing on Q2 results (October, 2008), Sensex will be at 8,600-8,800. But many companies will announce poor results in the next quarter.

2. Basing on Q3 results (January-February, 2009), Sensex will be at 7,000-7,400 (my estimate). It may vary according to Q3 results. Then Sensex will see some bounce back before Q4 results will come out which will further disappoint investors.

3. Basing on Q4 results (March-April, 2009), Sensex will be at 5,800-6,000 (my estimate). It is waste to think beyond that in this dynamic economic environment which is changing almost on weekly basis. If things improve before that quarter, I will update in the blog.