“When Sensex was around 6,000, I was asked by CA Anil Singhvi (Managing Editor- Zee Business) whether it will ever cross 30,000 (5X from that level). Today it stands at 60,000 & it is just a beginning of a long-term movie”
– CA Madhusudan Kela (Ex-Chief Investment Strategist- Reliance Capital) at ICAI World Congress of Accountants 2022
Many investors have inquired whether the Sensex will ever surpass the impressive milestone of 100,000. A few years ago, the same question was posed for the 50,000 level, and it successfully crossed that mark in mid-2021. Nevertheless, our response has remained consistent and will persist:
“The Sensex is a free-float market-weighted index comprising the top 30 well-established companies listed on the Bombay Stock Exchange. Initiated on January 1, 1986, with the base year set as 1978-79 and a value of 100, it has experienced remarkable growth, multiplying 630 times in the last 44 years (dividend excluded). We anticipate its continued ascent, albeit with some volatility, as long as India’s economy continues to expand.”
As of our current writing, the Sensex is hovering around 60,000. However, to address the million-dollar mysterious question of when it will reach the value of 500,000, it is essential to delve into the interconnection between macroeconomic factors, valuations, and market dynamics.
Macroeconomic factors
Stock market is known as the barometer of the financial health of the country. If the economy is doing good, the stock market will perform well & vice versa.
EY India in its recent report ‘INDIA@100: Realizing the potential of a US$26 trillion economy’ highlighted the following facts:
India’s position has gone from the 13th largest twenty-one years ago to the fifth largest today and will become the third largest economy after China and the US by 2030;
Even while maintaining a stable yet modest growth rate averaging about 6% per annum, India would become a US$26 trillion economy by 2047;
In 25 years, our per capita income would be over $15,000 – six times its current level of $2,500
By 2047, India will achieve the goal of becoming a ‘developed’ economy’. As per World Bank, a country is considered as developed if the per capita income is at or more than $13,205.
Valuations
When talking about valuations, always remember – The valuation of shares is a slave of corporate earnings.
And Price to Earnings Ratio (‘P/E ratio’) is one of the widely used indicators to value a stock which is computed using the following formula:
Price of share
Earning per share (EPS)
Eg.- Eiko Lifescience trading at INR 79 with P/E 103 is very expensive as compared to SRF that is trading at INR 2,105 with P/E 33.
Historically, the average P/E ratio of Sensex has been around 21. Whereas EPS growth of Sensex over the last 20 years has been around 10-11%.
Using the above facts, we can make a reasonable estimation of the value of Sensex over the next 25 years:
Therefore, based on the current available data, it is plausible that we may see the Sensex reaching 500,000 in the 2040s. It’s worth noting that on occasion, the P/E ratio of the Sensex reaches as high as 40. In such instances, the milestone of 500,000 could potentially be achieved in the late 2030s.
How to restructure your portfolio?
One universal principle is the ‘Law of the farm’ A seed when sown has to go through various seasons before it turns into a fully grown tree. So is the case with investments. There will be seasons of high, no and negative returns. Therefore, invest as per your GOALS and RISK APPETITE.
Since every investor has a different set of goals and risk appetite, a common strategy may not work for every investor. It is highly recommended to seek professional guidance as the journey of next 25 years is going to be highly REWARDING but at the same time volatile and emotionally draining.
Disclaimer: The views expressed herein constitute only the opinions/ facts and do not constitute any guidelines or recommendations on any course of action to be followed by the reader. This information is meant for general reading purposes only and is not meant to serve as a professional guide for the readers
Mutual Fund Investments are subject to market risks. Read all scheme-related documents carefully before investing.
Super informative and well written