Sensex at 150,000 by 2029: The ultimate compounding machine
Looking back, the story of the Sensex is the story of India in a sense. In 1979, India was virtually a basket case in the global scheme of things, with a GDP of barely $130 billion. In fact, in 1990, the country went nearly bankrupt with forex reserves dwindling to a few months of our imports. Then came the IMF bailout package, and India has not looked back since.
I clearly remember that my first investment was in 1979, the same year that the BSE was constituted with a starting value of 100. Over the next 45 years, that 100 has ballooned to 75,000 today, at a handsome rate of 15.85% to be precise.Looking back, the story of the Sensex is the story of India in a sense. In 1979, India was virtually a basket case in the global scheme of things, with a of barely $130 billion. In fact, in 1990, the country went nearly bankrupt with forex reserves dwindling to a few months of our imports. Then came the IMF bailout package, and India has not looked back since.
It took India over 60 years post-independence to clock its first $1 trillion of GDP. That done, the second and third trillion dollars of GDP came in just seven years each, and we are close to the fourth trillion dollars, taking just three years. India is today the fifth-largest economy in the world and is poised to be the third-largest soon. Our forex reserves are at almost $650 billion.
Of course, as with any economy and , the India and Sensex journey is not one-way up. There have been quite a few boom-bust episodes - the Harshad Mehta case in 1992, the dotcom boom-bust in 2000, the global financial boom-bust in 2008-2009, and more recently, the pre-and post-Covid boom-bust-boom. But still, as my pet quote goes, in India, the downs are temporary and the ups are permanent.
So, where do we go from here? This question can be answered in multiple ways. First, the doubling of Sensex from 37,500 to 75,000 happened in just under five years. This works out to a compounding of 15%, almost the same as the 45-year compounding rate.
Second, India's corporate sector profit has compounded at almost 17% over the last three decades. It is reasonable to expect 15% corporate profit going forward. If current P/E levels of 25x are maintained, this too translates to the Sensex compounding of 15% i.e. double every five years. In other words, the Sensex level of 150,000 around the year 2029.
The sceptic is bound to question - it's one thing to double from 37,500 to 75,000 in five years. But can this repeat on a significantly higher base? This is where the third argument comes in - India's retail equity revolution.
Pre-Covid, the number of new demat accounts opened was an average of 350,000 per month. The current demat monthly addition run rate is over 3 million. Total demat accounts have exploded from 40 million in March 2020 to 150 million today. Monthly mutual fund SIP inflows have shot up from ₹8,000 crore five years back to ₹19,000 crore now.
This retail equity boom is doing a couple of things. One, in the primary market, it is flooding the Indian corporate sector with liquidity to be invested for growth. Two, the boom in the secondary market is translating into wealth-effect-led consumption, further supporting GDP growth.
One final dimension of the Sensex story is technology and digitisation. From multiple stock exchanges, outcry trading, and physical handling of share certificates, Indian markets have moved to just two exchanges, fully dematerialised shares, total online trading, and now even digital onboarding of investors.
In sum, who precisely knows the future? But there is a good probability that the equity market's 15% compounding of the last 45 years may well sustain into the next 45! The implication - stay invested, so that you don't miss out on this ultimate compounding machine called Sensex, also read India.
(The author is Chairman of )
Source: Stocks-Markets-Economic Times
