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India's Best Fund Manager Agrees: Sensex 40,000 in 3-4 Years - Views on News from Equitymaster

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The Equitymaster Research Digest

India's Best Fund Manager Agrees: Sensex 40,000 in 3-4 Years
Sep 27, 2016

Prashant Jain is one of the few fund managers we follow. He has one of the best long-term track records in the mutual fund industry.

So what's on Prashant Jain's mind these days? A leading business daily has the answer.

Prashant sees no reason why the Sensex can't compound 14-17% over the next five to ten years.

He has history on his side. For close to four decades, the Indian economy, in nominal and rupee terms, has grown 14-17% per annum. And in great proof of what drives stock returns over the long term, the benchmark index has also grown 14-17% per annum.

Will the future be different? Prashant doesn't think so. He says the Indian economy will maintain, if not better, this growth rate. The Sensex too should compound 14-17% as India's market cap to GDP is again quite low.

A Different Ratio

Market cap to GDP, one of Buffett's favorite metrics, is one of the many valuations ratios used to indicate whether a company or a benchmark index is cheap or expensive compared to its past.

It is normally used when the PE ratio doesn't seem meaningful because either the company's earnings are not normalised (could be low because of a cyclical downturn) or the company is loss making currently but will soon regain normal profitability.

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