Sensex 40,000 Breached on Modi Victory. How Long Before Sensex 1,00,000?

May 23, 2019

Rahul Shah, Editor, Profit Hunter

The exit polls were right after all. As the results started pouring in, it wasn't Modi's victory that was in doubt any more. It was the magnitude of it.

In a pro incumbency wave, the likes of which one hasn't seen in recent decades, Modi and his NDA romped home with a haul even bigger than last time, a feat very few of even the most optimistic Modi supporters would have seen coming.

Ab ki baar phir Modi Sarkar is indeed a reality now.

And if you thought the stock markets were done celebrating a Modi victory, you made a big mistake.

No sooner did the numbers start trickling in, the bulls went berserk, and as I write this, Sensex is trading up by a whopping 500 points. It also breached the elusive 40,000 mark for the first time ever in history.

Although there was a big pullback as the day progressed, the overall sentiment is anything but negative.

I wouldn't be surprised if the Sensex continues to trend higher in the days to come.

Does the sheer scale of Modi's win change things for the stock market, both in the near as well as the medium term?

Should there be a change in one's investment strategy, and if yes, what should the change look like?

Well, I can't say with any degree of certainty what the market might look like in the near term.

This is simply because in the near term, the market is more a voting machine than a weighing machine. It is driven more by sentiments and emotions than fundamentals and pure reason.

From a more medium to long term perspective, the stock market valuations are certainly running way ahead of fundamentals and I don't think a thumping Modi victory could change things a lot here.

Fundamentals are not likely to improve so fast and so soon so as to catch up with valuations.

Modi doesn't have a magic wand that can make India Inc grow at 25%-30% over the long term.

It is the valuations in my view that may have to fall to align themselves up with the fundamentals.

And this is only possible if there is a correction in the market.

Yes, you heard that right.

As things stand now, there is a greater possibility of a market correction over the next one year or so than the Sensex witnessing a strong bull run.

Which is why it will be a good idea to invest any new money that one has at a ratio of around 25:75 between stocks and bonds i.e. 25% of the allocation to stocks and the remaining 75% to bonds.

Please note that I am not denying Sensex 1,00,000.

However, the road to this summit is not going to be smooth.

There will be times when valuations will run way ahead of fundamentals and one may have to exercise caution and take some money off the table.

And there will be times when everyone around is scared and begins to doubt whether the Sensex will reach 1,00,000 at all.

And this will precisely be the time to increase exposure to stock to as much as 75%.

You can very well do what everyone else is doing and celebrate a Modi win by increasing exposure to stocks.

However, no one beats the markets over the long term by doing what the majority is doing.

Long term outperformance comes by following sound investment principles that are related to intrinsic value of the stocks and not to their market price action. And it also comes from having a method of operation that is different from the majority of investors.

Both of these rules are pointing towards exercising caution right now.

So to go back to the original question: How Long Before Sensex 1,00,000?

Well, I don't have the faintest of ideas.

But I do know these rules will keep you out of mischief and ensure that you make the most of Sensex 1,00,000.

And if you are keen on investing right now anyways - pay attention to these things first: fundamentals and valuations.

Warm regards,

Rahul Shah
Rahul Shah
Editor and Research Analyst, Profit Hunter

PS: For stocks with exactly the right fundamentals and valuations that are set to go way up over the long term, get this special 4 stocks report right now.

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