The Great Indian Bull Market - Sensex 50,000 by 2020?

Monday, July 09, 2007

When we hear such optimistic predictions, we run to hedge our bets on the market. Don't mistake us, we love the way the market has been going and hope it keeps going, but its wise to step back and tamper optimism with reality. The last market correction was around the Sensex at 12,000 when the market took a 30% dive. We will not try to predict when the next correction will come, but trust us, it will come, and probably soon.

Our point is not that the market will not scale new heights in the long run, but the upward ride is interspersed with several bear runs during which the market will take some spectacular dives. The biggest risk to long term market gains, in our opinion, is political. The prospect of fragmented election outcome with assorted left-wing influence derailing the liberalisation process is a real threat. Steady privatisation and deregulation of the various market sectors is essential for the long-term market well-being.

Our investment philosophy involves getting out of the market when we believe the risk is too high. So to our readers, who might be thinking of taking a big loan to invest in the market, based on these rosy predictions, we would like to say that on its way to 50,000, the market could go down to 8,000, and when it does, how will you be doing? In the long run the market will someday scale 50,000, but that some day could be 15 years from now or 50 years.

You might have guessed that we are not big believers in "buy and hold" strategy for investing, (sorry Mr. Buffet). At a given level in the market, an investor must make a decision based on the risk versus expected return, whether its time to invest more, sell or just wait and watch. Optimism about the market (even in the long term) is not an investment strategy and that is all we have to say about that.

Sensex to hit 50000 by 2020: Morgan Stanley

Mumbai, July 8: Sensex hitting 50,000 is right now only a serious prediction for Morgan Stanley and a laughable target for others but believe it or not Brazil's 50 share benchmark index 'Bovespa' went past 50,000 mark in May this year.

Sensex crossing 15,000 was also unimaginable two years back but today it is a reality and very close to what former SEBI whole time member Madhukar uttered, predicting that Sensex will cross 16,000 mark also.

After achieving this record landmark analyst feel that Sensex will cross 25,000 mark by 2010, which big bull Rakesh Jhunjhunwala predicted in 2005 only.

Another brave statement from world's leading investment bank Morgan Stanley predicts Sensex to cross 50,000 mark 12 years from now in 2020. Morgan Stanley's prediction came in February only and they still hold on to what they predicted earlier.

"You just need to factor in India's GDP growth of 8 per cent along with an inflation of 5-6 per cent and the cost of manufacturing than what Morgan Stanley has predicted," Angel Broking's CMD, Dinesh Thakkar said.

Also, the Sensex crossing 50,000 mark is in the realm of possibility with Brazil's Sao Paulo Stock Exchange's benchmark index Bovespa hitting 50,000 mark first time ever on May 3 and closing around 55,000 mark last week.

BSE - SENSEX as on 21 January, 2009.

As at January 8, 2009, the BSE-SENSEX had closed at 9071 (it is at a lower level - 8984, on January 21, 2009 - 1221hrs), a far cry from 20873 on January 8, 2008.

• Now, even if it takes 5 years (January 2014), for SENSEX to reach its previous high, the return would be 18.14% (CAGR).

• If it takes 7 years (January 2016), it would be 12.64%.

• And even if the SENSEX reached that figure in 10 years (January 2019), the returns would be 8.69%.

• The surprise is that even for a 15 years time frame (January 2024), the SENSEX generates a CAGR of 5.71%.

Not bad at all when you consider that the 10 year Government Security yields 5.65% (as on January 21, 2009 - 1221hrs.) and that the long term capital gains tax on equities is NIL.

So its better to invest in insurance policies right now, specially those policies, which yield interest on compounded basis under market risks, keeping the above 10years plan in mind. Yes, we are talking bout, Unit Linked Insurance Plans (ULIPs).

If market is suffering from the inflation, that doesn't mean you should leap one-on-one for those mis-sold traditional policies, say for example, Jeevan Astha or something like Recurring Policies. To invest in the victim market is the best policy, and the for that purpose, ULIP is the best policy. Hope, you trust, atleast the above bulleted figures!!!