Economy

When Could the Sensex Hit 100,000 Forecasting the Road Ahead

Published On Tue, 09 Jul 2024
Arya Bajaj
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The markets are surging to unprecedented heights, with the Sensex closing at 80,049.67 on July 4, rebounding strongly following recent election-related uncertainties. This surpasses year-end targets set by several brokerage firms. Prominent investors foresee the Sensex potentially reaching the 1 lakh mark within the next three to five years. Renowned billionaire investor Mark Mobius has expressed optimism in India's bullish market, suggesting that the Sensex could achieve this milestone even before the conclusion of Prime Minister Modi's third term.
The journey from 70,000 to 80,000 points took less than seven months. Since its inception at 100 points in April 1979, the Sensex has grown impressively at an average annual rate of 15.9%, expanding 800-fold. It took approximately 1.48 years to double from 1,000 to 2,000 points, and significantly shorter periods for subsequent doublings, such as 0.21 years to reach 4,000 points by March 1992.
From 40,000 to 80,000 points, the index spanned five years and 1.5 months, with an average doubling period slightly over five years. With a historical compounded annual growth rate (CAGR) of 16%, achieving the 1 lakh milestone by December 2025 appears optimistic yet feasible, provided consistent growth continues. However, sustaining such high returns from a higher base poses challenges.
Despite the Sensex more than tripling from its March 2020 lows, caution remains due to potential market volatility ahead. Along the path to 1 lakh, several indicators emerge as pivotal:
1. Historical Doubling Periods: While past performance doesn't guarantee future results, the Sensex's quickest doubling occurred in just 2.5 months from 2,000 to 4,000 points in 1992, contrasting with longer periods like the 11.5 years from 2007 to 2019 to reach 40,000 points. Doubling to 50,000 points in January 2021 suggests a historical period of approximately five years, potentially positioning 1 lakh within reach by January 2026.
2. Sensex Returns and GDP Growth: Over the past 45 years, the Sensex has closely mirrored India's nominal GDP growth rate, averaging around 16% annually. The economy is projected to grow at 6.5%-7% over the next three years, potentially supporting a nominal return of 7% annually and a Sensex value nearing 1 lakh by December 2027.
3. Market Cap to GDP Ratio: As of March 2024, the market cap to GDP ratio stood at 135%, above the 20-year average of 83%, suggesting elevated market valuations. Analysts caution against overheating and anticipate a possible correction, the timing and extent of which are uncertain.
In the event of a 10%-20% correction, achieving annual returns of 12% or 16% would be necessary to reach the 1 lakh target by 2027 or 2029, respectively. Both scenarios are considered ambitious given the scale of the current market. If no correction occurs, the Sensex remains on a trajectory towards potentially reaching 1 lakh by 2027.
Disclaimer: This image is taken from Mint.
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