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The Equitymaster Research Digest

Sensex 300,000 is Possible. Here's Why...
Jul 12, 2017

  • How the Sensex can get to 300,000 by 2035
  • Richa's new special report - 'Backdoor Profits'
  • Vivek explains why property prices haven't fallen after Notebandi

Can you imagine a country's main stock market index quadrupling in just twenty months?

It happened in India.

It was early 1992. The Sensex had just crossed 3,000 for the first time. The Harshad Mehta bull market was on in full swing. Just a few weeks previously, the Sensex had crossed 2,000.

Those who didn't buy when the Sensex crossed 1,000 for the first time in July 1990 were kicking themselves. The market had doubled in a year and a half. Then, just a few weeks later, it had tripled.

But it didn't stop there.

Those who predicted Sensex 4,000 were proved right just a few weeks later!

Those were crazy times. It was one hell of a party.

How the Sensex Quadrupled in Twenty Months

Now imagine someone making the following prediction at that time...

'The Sensex will be at the same level a decade from now.'

Would anyone have believed him?


But that's exactly what happened.

The Sensex traded below 3,000 as late as May 2003.

That's when the great bull market of the last decade began. The Sensex rose seven times in less than five years and peaked at 21,000 in January 2008.

What does this tell us?

It takes a long time to overcome a bull market top. The Sensex did not cross 21,000 decisively until March 2014. That was more than six years after the previous bull market top of January 2008.

However, once the market breaches the previous top, the party starts again. We are in the middle of a party right now. Yesterday I wrote to you how Sensex 40,000 could be near.

But what about the long-term?

In yesterday's The 5 Minute WrapUp, I wrote about Sensex 300,000.

Yes, 300,000. I didn't add a zero by mistake.

What do you think about this? Would you call it a crazy prediction?

Well, let me clarify that it's not a prediction.

All I did was to compare the US market of 1964 and 1981. During this time, the US market gave exactly zero returns. Yes, zero returns for seventeen years!

But from 1981, it went up ten times over the next seventeen years.

I was trying to figure out which market - the US of 1964 or 1981 - better describes the Indian markets today. Here's what I concluded...

  • The economy does not have to be very strong for stock prices to go up. Even a moderately strong economy can support soaring stock prices - if there are structural changes in the economy that take interest rates lower and send corporate profits higher.

    Which way do you think interest rates and corporate profits are headed in India?

    Most of us probably agree that a flat stock market for the next seventeen years is a remote possibility. Interest rates aren't likely to go substantially higher from here. Nor are corporate profits likely to go significantly lower.

    But what about the other scenario? Can interest rates head lower and remain there on a sustainable basis? Can corporate profits inch higher?

    It would require structural reforms...an alteration of the basic landscape of the Indian economy. And there are some positive developments on this front in our view - GST not being the least of these.

    With more structural reforms coming our way, could Indian markets do an encore? Could they go up 10x in the coming years?

    Sensex 300,000 by 2035 anyone?

    Don't count it out.

Don't believe it can happen? Here's some perspective.

The first time the Sensex went up ten times, from 100 to 1,000, you had to wait eleven years and four months. The second time from 1,000 to 10,000...about fifteen years and six months.

2035 is still more than seventeen years away. So yes, 300,000 is certainly possible.

Long-term investors need not panic if we see Sensex 40,000 soon. As long as the structural changes in the economy continue, there's a lot of upside in the market still to come.

Backdoor Profits

Richa has informed me that she is almost ready with her new special report - Backdoor Profits.

She will recommend three stocks in this report. The idea of 'backdoor profits' is quite exciting, as are the three stocks.

I'll write more about it next time. But you won't have to wait for the next edition of the Research Digest for the details. You will get the report very soon!

Watch your inbox...

Why isn't Notebandi bringing down property prices?

If you have struggled for the answer to this question (I know I have), I highly recommend Vivek's latest writing on this.

The data says that property sales have collapsed after Notebandi. Then why aren't prices falling?

Find out here.

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