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A Chartist's View on Sensex' 70% Surge - Views on News from Equitymaster

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The Equitymaster Research Digest

A Chartist's View on Sensex' 70% Surge
Apr 13, 2016

  • Chartist takes a hard look at Rahul's Sensex prediction
  • A time to celebrate...

At Equitymaster, we have one goal: to do for our subscribers what we would expect of them if our roles were reversed. We may not always be the 'experts' to offer the opinion that you seek. But you can rely on us to provide you with honest and credible opinions. After all, Equitymaster was founded 20 years ago to be the platform for all honest and credible opinions on investing.

For instance, co-head of research Rahul Shah recently did some math to predict a potential 70% surge in the Sensex over the next two to three years. Here's his rationale...

  • If aggregate profit margin is such a reliable indicator, how about using it in the Indian context? Indian stocks are famous for giving 15% returns over the long term (provided one does not invest in an overheated market). Can this be improved by a few percentage points by capitalizing on the phenomenon of reversion in profit margins? Yes. And the current environment provides a great opportunity to do so.
  • The aggregate data we have pulled for Nifty companies suggests that profit margins were at a ten-year low at the end of FY15. Even if they were to rise to the average of the last ten years, not immediately, but three years out, the upside would close to 70%.
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