Here is a thought. An asset bubble occurs when assets are valued way above their true value normally via lending. However, contained within the asset bubble, maybe an actual rise in value of the asset due to tangible improvements in the assets’ value. Take a house. The price of a house may rise because a general house price rise. Interest rates are low; banks are therefore offering cheap mortgages with high income multiples leading to huge uptake and therefore great demand that can be matched by new buildings. The price of a house can also rise because of improvements for example conversion of the garage into an additional room, addition of a swimming pool etc.
Once the bubble bursts, assets reveal their true value. The question is which of these two value are true for the NSE index shares. If the true value is the one we are seeing today, we are in a bad spot. However, I am more inclined to think that most companies' true P/Es are in the middle somewhere anchored by the growth in their profitability. The question then moves on as to whether in the face of a global slowdown (shrunk markets for our products, lower remittances, more expensive imports), their profitability will be sustainable in '09 and 2010.
Bottomline: Based on the above ,I predict that the NSE won't touch 5,000 before June 2009.