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Tuesday, January 15, 2013

Sensex to cross 50,000 in 2016?

A valued reader asks this very interesting question:

Question: Today i was watching CNBC Awaz and Mr Amit Rathi of Anand Rathi Securities talked in great confidence of Sensex crossing 24k mark in 2014 & forecasted that he saw Sensex at 50-60k in span of 10-15 years from now... Sometime back JP morgan had also forecasted in 2009 that sensex will cross 50k in 9 years..

What do you think on this ? .. also please suggest how to pick specific equities in this case of 10-15 year horizon ??? Should we aim only at index 30 stocks ?

Answer:

This question is both very simple and impossible to answer. 
Impossible because, by nature of markets, it is impossible to judge what will happen tomorrow, let alone in next 4 or 8 or 12 years.

TV analysts remind me of religious Godmen or Baba's, who confidently answer all questions, be it on God, Life or Death. They know everything under the sun. It doesn't matter how many times TV Analysts are proven wrong, foolish or irrelevant!

Since we are not TV analysts (yet!), so answering these gigantic questions is impossible for us.

However, using simple techniques of extrapolation or mathematical jugglery, we can draw a simple excel. This has many assumptions and is not far away from religious baba's diktat in its constitution :)

Pls see below, average value of Sensex starting 2002, which was a bear market low. Each year we assume a moderate 12% growth in Sensex, assuming economy grows by 6% to 8% and Sensex features the best companies in our Economy, so it grows atleast double of overall Economic growth.


This provides a conservative picture for 2007 highs and 2010 highs, but keeps the overall movement in perspective. This simple extrapolation of yearly 12% growth gives Sensex range of 54000 in 2022 itself!!

Hail TV Analysts and religious Godmen! 

Regarding question on what to buy to take advantage of this growth in India:

Buy Midcaps when market hates them and sell them when TV analysts start talking about your stocks :)

4 comments:

  1. Hi StockFundoo,

    Please advice whether Mahindra Holidays is a good investment for 1-2 year horizon , My cousins enrolled in their packages last year and they are of opinion that the company is very good for investment since it has already got customers with 10-20 year horizon and has long way to go in terms of properties also.

    What do you suggest about investment in this stock, please advice.

    ReplyDelete
  2. Do you track Puneet Resins & Pitti laminations . Is there any hope ?

    ReplyDelete
  3. Hi Naren ,

    Can you please suggest some good mutual funds to invest on monthly basis. My horizon is 5+ years.

    Thanks in Advance
    Rohit Sharma

    ReplyDelete
    Replies
    1. Hi Rohit,

      I dont track mutual funds very closely, but IDFC and HDFC etc are good names. You can bet on their midcap schemes. pls check their major holdings before investing to make sure that fund is indeed buying midcaps.

      Delete

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