Sensex may breach 100k in 5 years
The Sensex, which first hit 1,000 in 1990 took just over three decades more to touch the 50,000-mark. There have been many ups and downs for the Sensex like the Harshad Mehta Scam and subsequent revival during the Dotcom Boom, then the Dotcom Bust, followed by a resurgence till the Global Financial Crisis, then a sharp rally till the European debt crisis and then of course the covid-19 pandemic.
But 1000 to 50,000 in 3 decades. Let that sink in!
Keep in mind that during this period traditional asset classes (like gold and real estate) were preferred. There was low awareness of equity market investments. Transacting was not easy. Brokers had to be given instructions the day before the market opened. Shares were held in physical form until dmatting of shares became mandatory. There was no handheld technology to transact. All key deterrents to the growth of the Sensex!
In spite of all this, Sensex registered around 14% CAGR growth over the last 31 years.
But today there is the ease of trading, your mobile has the power to help you transact. The dismal returns from traditional asset classes, improving share of family investments in equities/debentures, and mostly the rising awareness among millennials are likely to aid equities in the long run.
Robust foreign liquidity inflow by international investors catapulted the BSE Sensex beyond 50,000 in the first month of 2021. Many experts have given their thoughts on this development. I am going to put down a few which in my opinion matter.
A revival in earnings growth and structural reforms can propel the index to the 100,000-mark in the next five years, or even earlier
The last 20 years’ earnings growth for Sensex has been 10.5% and the returns over the same period have been 13% on a compounded annual growth rate basis. Assuming the same numbers continue, we should be hitting 100,000 in the next 6 years! Even if we pessimistically assume that there will be a drop in the GDP due to COVID waves and the average annual return comes down to 8%, we are still not looking beyond 2030 for the Sensex to breach 1,00,000
Why do I say that ?
- Foreign institutional investors led the investments in Indian markets in 2010–20. During the decade, FII investments in Indian equities stood at $107.38 billion, with only four years of outflows.
2.Domestic institutional investors (DIIs) have invested $23.94 billion in Indian shares, with mutual funds being the major contributor till 2020.
3.Post the pandemic, we have seen many investors exit the mutual fund market thinking that it is better to conserve cash.
4.Note that about a million demat accounts are being opened every month in India, nullifying the effect of the retreating funds from FIIs.
As you can see, my thoughts on Equities are likely to remain the best investment avenue from the long-term perspective. The Sensex is poised to maintain a long-term growth rate of, between 8% -14% in the coming years
There is no fighting the fact that we are going to see 100,000 by 2030 at the latest and if our luck holds out as it has been doing, we may even see it by 2025!
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