When will Sensex reach 21,000? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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When will Sensex reach 21,000? 

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In this issue:
» China's index to fall further
» Can India sustain 6.1% growth of last quarter?
» Tata Motors' hopes of some better quarters ahead
» India scores better on the unemployment front
» ...and more!!


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00:00
 
The Indian stockmarkets have considerably rallied since March 2009 after being down in the dumps for most part of 2008, so much so that valuations are once again beginning to look a tad bit expensive. So, the million dollar question is, "Where are the stockmarkets headed next?"

Mr. Ajit Dayal, the Director and President of Quantum Asset Management Company, and also the founder of Equitymaster, in a webinar organised by us on Monday expressed his view that the stockmarkets could rise to 21,000 by June 2010. Further while Ajit indicated that poor monsoons, rising oil prices, swine flu epidemic and terrorism are major concerns, there are also many positives. Mainly corporate earnings will continue to grow despite consumption tapering down as costs have also come down. He also sees government spending to add on to the income of the people as jobs will get created and economic activity will heighten. Further, with countries reporting to printing notes, globally there is too much money lying idle which is waiting to move.

That said, he also stressed on the fact that 'staying disciplined' is amongst the best things that an investor can do with his/her investments in the stockmarkets. Ajit said that investing is not about returns, it is about knowing the risk you take to make a potential return. Further, it is important to study and understand the companies in which you want to invest in and have faith in the managements of these companies. As he said, at the end of the day, in the short to medium term, many developments will have a huge bearing on the movement of the indices but in the long term, stock market returns will move in tandem with company's earnings.

In case you have missed Ajit's Webinar, you can listen to the repeat telecast on September 4, 2009 i.e. Friday at 10 a.m.

01:14  Chart of the day
As far as GDP growth is concerned, just as India has scored over its peers despite the slowdown, on the employment front too, India has the edge as is highlighted in today's chart of the day. While there have been talks of a recovery taking place in various countries across the globe, rising unemployment remains a serious problem. The US, in fact, expects the rate to be as high as 10% in 2009. Thus, despite stimulus packages being announced, high rates of unemployment will not be conducive in bolstering consumption which will be necessary to come out of the slump.

Data Source: The Economist

02:01
 
As per Bloomberg, last month, China's manufacturing expanded at the fastest pace in 16 months fuelled by the record lending by their banks. The question arising is if these numbers reflect a genuine momentum in the Chinese economy, or are they merely fudged numbers. Recently Marc Faber had said, "The Chinese government is one of the few governments in the world that knows its GDP numbers three years in advance. I'd be a bit careful about China."

It may be noted that the grand goal of meeting a GDP target involves smaller milestones such as manufacturing and credit growth numbers. These numbers can be fabricated if the government is determined. And there is no doubting the Chinese administration's determination to march ahead. Normally that's a good thing, but not always. Giving an example of what the Chinese government does, a Chinese Communist Party official had recently suggested that officials build a bridge, then dismantle it and then rebuild it, each time contributing to GDP. There is much to be admired about China's economic progress, but the recent numbers seem too good to be true. And it is said, what is too good to be true probably is.

02:46
 
India may be an emerging superpower. But even today, seven out of every ten Indians live in villages. Although the contribution of agriculture to the country's GDP has declined from 60% to 16% in the past decade, the impact of the same on the wellbeing of Indian populace can hardly be overlooked. With the Rain Gods showing little benevolence and monsoons being 25% below average, risks to India's GDP growth have only multiplied.

The drought, poor irrigation and water harvesting facilities are unlikely to save crops facilities in the subsequent harvesting seasons as well. The country's central bank is now worried that the Rs 5.6 trillion injected into the economy through combined fiscal and monetary stimulus, accounting for 12% of GDP, will actually stoke inflationary pressures in the near future. India's's GDP did grow by 6.1% in the first quarter of the fiscal. However, the drought means that it is doubtful whether this growth can be sustained in the coming quarters.

03:17
 
A list of the top five gainers on the Nifty since the start of the year 2009 includes this company. But its consolidated financial performance in recent quarters has hardly inspired confidence. It continues to get weighed down by losses at its overseas subsidiary and the most recent quarter was no exception.

Tata Motors, India's largest CV manufacturer reported its 1QFY10 consolidated results yesterday. It posted a loss of Rs 3.2 bn. This was due mainly to losses at JLR (Jaguar Land Rover). The UK based maker of sports and luxury cars posted a loss of £ 64 m (approx Rs 5.1 bn) for the June quarter. JLR's volumes showed an improvement over the March quarter but failed to take the company past its losses. With several new models in the pipeline and significant cost reduction measures being undertaken, the company has expresses hopes that things would start looking better in the forthcoming quarters. It is also planning to raise Rs 27 bn from a European bank to meet its working capital requirements. Looks like the much awaited revival may not be too far away. Any further disappointment and the investors may exit the stock in a hurry.

03:51
 
The Chinese markets, represented by the Shanghai Composite Index, have dropped by 22% over the past one month. And if this was not enough, read what former Morgan Stanley Asian economist Andy Xie has to forecast. Xie says that the Chinese Index, which has already been the world's worst performer in August, may fall another 25% as the country's economic recovery isn't sustainable.

Data Source: Yahoo Finance

"The market is in deep bubble territory. The recovery is not sustainable," said Xie, who resigned as Morgan Stanley's chief economist in Asia in 2006 and now works as an independent economist. Xie had in fact sounded caution on Chinese stocks and property at the start of August, when he had referred to these as the next bubbles to pop. And like then, he still believes that the bursting of the bubble may lead to a very hard landing for the Chinese economy.

While Indian markets have shown some restraint despite the crash in China since the start of August, it would be interesting to see how long they will be able to hold on, as foreign investors' nervousness with China will definitely have its repercussions around the region.

04:27
 
Shipping rates might just be set for a second crash this year. In fact, as per a survey conducted by Bloomberg, they may fall as much as 50% from their current levels by the end of 2009. This comes on the back of China reducing raw-material imports and a record number of new vessels that are slated to set sail in the near future. Things have been exacerbated by the fact that China's state council called for curbs on steel and cement production last week. Also, reports suggest that a record 146 capesizes (a kind of a large cargo ship) will be added this year, which equal to 28% of the current fleet, thus making for an even grimmer future for shipping rates.

04:48
 
After trading well above the dotted line during the morning session, the BSE-Sensex plunged into the negative territory in the afternoon and was languishing in the red at the time of writing (down around 125 points). On the global front, while key Asian indices closed mixed, European indices are trading in the red currently.

04:56  Today's investing mantra
"In the business world, the rearview mirror is always clearer than the windshield." - Warren Buffett
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19 Responses to "When will Sensex reach 21,000?"

lakshmi

Apr 19, 2012

whether sensex will reach 21k or not this year

Like 

Altaf Hussain Chaugule

Sep 6, 2009

very informative
are there mutualfunds that are sharia compliant?

Like 

murali

Sep 5, 2009

the way it was written good but i request you to give in detail about all the sectors whichwill defenitely helpful for several investors

Like 

R.P.SUBRAMANIYEN

Sep 3, 2009

when the correct time to invest? and which sector? is the correct time for selling?

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sumit

Sep 3, 2009

having loss suggest me whom and how to follow

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DIVYESH ZATAKIA

Sep 2, 2009

pls send all articles in gujrati language or in hindi.

sensex cant touch 21000 because our market is moving only by operator and many industrialist.
our export import are falling down & people are suffering by "MONGHVARI" & people are finding job but nowadays we are finding more people jobless. if our government fisically check jobless data they will find higher side in INDIA.

Like 

Puneet Saigal

Sep 2, 2009

No major downside in near future

Like 

uday mehta

Sep 2, 2009

YES WE ARE IN A BULL RUN..... IT WILL NOT ONLY GO TO 21000 BUT IS EXPECTED TO REACH 24000 - 27000 BY 2015/16. TREND IS OUR FRIEND. AS A LONG TERM INVESTOR, KEEP LONGER STOP LOSSES TO AVOID VOLATILITY.
1992 HARSHAD MEHTA BUBBLE +8 YEARS = 2000 KETAN PAREKH BUBBLE + 8 YEARS = 2008 FINANCIAL BUBBLE + 8 YEARS = 2016 .... SOMEWHERE HERE WILL BE THE NEXT BUBBLE !!! HAPPY LONG TERM INVESTING

Like 

chmahadevan

Sep 2, 2009

My view is that SENSEX will touch 21000 on a stable basis only in 2012 at the earliest.

Like 

Abhaya Kumar

Sep 2, 2009

Movement of sensex to 21k is not so much important rather than it should reflect and be guided by the fundamentals of the economy. Other wise once again it will be a swallowed ballon which comes to its real position when gets bursted. Better you should include a topic with graphics on comparison of fundamentalvis a vis Sensex/Nifty.

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