'I see Sensex at 31,000 by March 2012'

Jun 10, 2010

In this issue:
» Ajit Dayal sets a new target for the Sensex
» Look who's buying distressed assets in Greece
» Government to review new shareholding norms
» US debt to exceed GDP by 2015
» ...and more!

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India has one of the most resilient economies in the world. This has perhaps been proved beyond doubt. A few blips notwithstanding, it has managed to grow north of 6% every year for a period as long as 30 years. And this resiliency has certainly not lost on the founder of Equitymaster, Ajit Dayal. He believes that a similar growth rate can be achieved in the long term future as well. In fact, as per him, this growth rate could well be surpassed with a little help from infrastructure.

Please click on the image to view the video clip

It should be noted that Ajit has been sticking his neck out for quite some time now and predicting a 21,000 Sensex by July 2010. The deadline is little more than a month away. And everyone is curious to know Ajit's stand now. He finally let the cat out of the bag in the recently held Equitymaster WebSummit. And he has not just stuck to his words, but has gone a step further. Ajit now predicts a 31,000 Sensex by March 2012. Now, this doesn't require any heavy duty analysis as per him.

His simple contention is that India's GDP will continue to grow at its historical rate despite all the global economic turmoil. And this in turn will make the companies which are part of the Sensex grow their earnings. Assign a certain multiple to those earnings based on historical trends and you could well have a 31,000 Sensex by March 2012. Of course, this is not a perfect science. And the final number may deviate a bit from the target. However, as Ajit mentioned, invest in good companies, good managements at attractive valuations and you could well end up with fabulous returns on your money.

Missed the Equitymaster WebSummit? Catch the repeat telecast on June 11, Friday, 9:30 am. To sign up, just SMS EQ SUMMIT to 56070. Exclusively for readers of The 5 Minute WrapUp!

 Chart of the day
Today's chart of the day is perhaps another in a long list of reasons for taking a plunge into the yellow metal gold. As the chart indicates, despite the huge surge in recent times in gold prices, market value of all the gold that is present in the world today is a pittance as compared to other financial assets and even the total monetary base in the world. Thus, as currency risks increase and as people move away from traditional financial assets, even a small move towards gold may lead to its prices skyrocketing given that there is so little supply of it in the world right now.

Source: www.dailyreckoning.com

Continuing with gold, the yellow metal has been on a tear off late. And it has left investors shocked. Even the US Fed chief Ben Bernanke is puzzled on gold's surge. The yellow metal's gains are seen by many as a loud signal that big inflation pressures are building in the US. This is given that many investors see gold as a hedge against inflation risk. But, as per Bernanke, inflation signal isn't confirmed by movements in other asset classes. Instead, yields on the US Treasury bonds tend to rise when investors worry about inflation. And those yields have been falling recently! Thus the confusion for Bernanke, as he admits, "I don't fully understand movements in the gold price."

We believe gold's current price surge is most likely due to investors fleeing risky assets and flocking to those that are seen as less risky. And not only US bonds, even gold stands tall among these 'less risky' assets!

The eagerly awaited annual review of the oil & gas industry from the global energy giant BP is out. It reports that world oil consumption fell by 1.2 m barrels per day (bpd) in 2009. That's the highest largest volume since 1982. Oil production dropped by 2 m bpd, which is also the largest decline since 1982. BP estimates that the world's proven oil reserves stood at 1.33 trillion barrels in 2009, up by 700 m barrels from 2008 reserves.

Despite the decline in consumption, we believe there is only one direction oil prices will go - up! The average Chinese and Indian does not consume anywhere near as much oil and gas as citizens of the developed world. Not even close. Their per capita consumption of hydrocarbons is certain to go up. And given how unprepared one of the world's leading oil and gas companies, BP, is looking right now after the spill off the US Gulf coast, we worry about the supply side as well.

When individuals need money they go to banks. When banks need money they go to the government. But what does a government do when it needs more money than the value of all goods and services in the economy? That exactly is the dilemma that the US government is about to face. As per the IMF, the world's largest economy is in a pretty grave position. Its total debt is set to surpass its GDP by 2012.

Already, at US$ 13 trillion, the US government debt has multiplied in size thanks to the expensive bailouts. Economists believe that debt even at 80% of GDP can stunt an economy's real growth. And the US can least do with no growth and more unemployment. The US is now dependant on foreign investors to finance its debt. "The man with the addiction to alcohol is as addicted as the man who serves up the alcohol," wrote Ajit Dayal in an earlier issue of The Honest Truth. It seems that the US government is now paying for its past deeds.

A few days back, the government had made it mandatory for all listed companies to have a minimum 25% public float. Now the tone seems to have changed. The government is now willing to be more open and receptive to changes in these new rules if any. The idea is to get representations from public sector companies and other stakeholders. This with the aim of ascertaining the difficulties that are likely to arise while implementing these new rules. Implementing these rules would require atleast 5% annual equity dilution. Furthermore, it could turn out to be difficult to raise the estimated Rs 650 bn over the next 12 months.

Interestingly, a major portion of this will have to be raised by government owned companies. But given the lukewarm response that many of the IPOs of the public sector companies have received, the government itself appears to be wary. And hence the decision to probably reconsider these rules. One option would be able to reach the 25% public shareholding target in a phased manner. Either ways, it is once again evident that coming out with rules is one aspect, implementing the same is a different matter altogether.

Call it a contrarian approach, or a move to increase its influence on the rest of the world. But China is at it again. Even as the rest of the world runs away from Europe causing some bargain prices, China is moving towards it. As per some reports, the Chinese are planning to pump in hundreds of millions of Euros into Greece. Much of this is may go in investing in Greece ports. Their intention is likely to be to create a modern gateway linking Chinese factories with consumers across Europe and North Africa. These plans may sound a little outlandish. However, there will surely come a time when the dust settles and the European economies are on the path to recovery once again. That's the time these investments China is making will come to the fore. The dragon nation finally seems to be making good use of its surplus lucre.

Meanwhile, after trading in a narrow band, the benchmark indices broke free during the afternoon session and were trading strongly in the positive at the time of writing. The BSE-Sensex was trading higher by around 220 points at the time of writing this. Heavyweights like SBI, Reliance and L&T were seen driving a major portion of the gains. Other indices from Asia also showed a positive intent today whereas majority of Europe has opened in the positive as well.

 Today's investing mantra
"The intellectual leaders of the peoples have produced and propagated the fallacies which are on the point of destroying liberty and Western civilization." - Ludwig Von Mises

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12 Responses to "'I see Sensex at 31,000 by March 2012'"

ajekar babu hyd

Dec 15, 2011

dear diyal sir , how u wil predict by march 2012 31k sensex.according to my knoledge sensex wil drastacally fall down by january feb and march also by 8000pts.....



Sep 15, 2011

Does Mr.Dayal still stand by his prediction "'I see Sensex at 31,000 by March 2012'"?


akkiraju srinath

Jul 5, 2010

Leave alone, 2010 and the sensex range of 31,000. Can
Mr.Dayal kindly tell me where the sensex is headed before
the expiry. i have a few thousands lined up in the market
and i am a ignoramus.


vkb nair

Jun 20, 2010

Ajit's prediction is only a pie in the sky!. In order to reach the projected level of 31000 sensex points in 2012, the market capitalization of the 30 companies should register an annual growth of minimum 27% which is impossible. Yes, if Foreign Direct Investments(FDI) by individuals or Participatory Notes are legalized by SEBI then sensex can gallop to 40000 in two years. Otherwise wild predictions like the one by Ajit are a piece of wishful thinking and don't buy it.


Inder Pal Singh

Jun 19, 2010

The Introduction of GST and DTC will plug in unaccounted transactions all across the manufacturing and Trading and Service levels,thereby giving an inherent boost to Domestic Markets itself.
This will encourage the Indian Bureocrats to further recommend relax procedures and thus improve climate for Investments; Then next election results will keep the mood of markets to the desired levels coupled with higher earnings.



Jun 12, 2010

I don't see sensex even crossing 17600 mark what to say of 2100 by July 2010! Why make ridiculous predictions? Such prediction s ae neither to be trusted nor to be acted upon. I am keeping aside Rs 1000/-(Rs one thousand only ) to be gifted to Mr Dayal if the sensex reaches even 29500 by March 2012. No strings attached, no questions asked.



Jun 11, 2010

Indian markets are still dictated by FIIs and notwithstanding strong macro and fundamentals, any pull back by FII for whatever reasons can tank the Indian markets (remember 2008, 7% GDP growth, over 50% drop in sensex!)

The credibility of Indian govt. is extremely poor in the global investing world. Political interference is considered as big risk by all foreign fund managers. That is one reason why foreign pension funds are still keeping away from indian markets or taking very small guarded exposure.

Its a pity & irony that 4th largest economy of the world can't stand on its own bearing.

Guys, decoupling from global economy will be in next generation (2020 at the earliest), so watch out!



Jun 11, 2010

There seems to be contradiction within today's wrap-up. On one hand you are projecting fabulous returns with 31000 sensex by Mar-2012 and on other hand you are recommending to take a plunge into yellow metal! These views are contrary and sending mixed signals, to say the least.
I also agree with Shilpan that Bill Bonner and Ajit Dayal's views are contradictory and confusing the investors.
Let us see if sensex reaches 21000 by July, as predicted earlier.



Jun 10, 2010

I am a bit confused due to the contrarian views of Bill Bonner & Ajit Dayal. If the great correction is to play out won't India be affected, even though to a lesser extent? Please throw some light on this. On one hand there is a great risk in Bonds & Currencies of the developed world which might lead to flight to safety. On the other hand we have India where corruption, bureaucracy, lack of education & implementation, lack of understanding of environmental issues(water problem), lobbies working against organic farming - I could go on & on. Also throw some light on corporate governance issues of big Indian co.'s. Why has the naxalite problem grown much beyond the north-east? Is the world being governed by MNC's with big bucks rather than peoples representatives? Let us have the honest truth.


Suresh Aithal

Jun 10, 2010

Grate projections set out by Mr Ajit Dayal looks seem's very difficult to reach? highly ambitious. Is it is possible time is the answer. That would be an impressive growth rate for INDIA.India's BIG YOUNG POPULATION consumer has the power of business story.Let the story comes true.

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