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Friday, October 26, 2012

Can Sensex Achieve Target of 1,00,000 by 2020?

Sensex Target of 1,00,000 by 2020

In view of the fact that the BSE Sensex has yielded an internal rate of return (IRR) of 17.25 percent since its inception in 1979, the chances of it hitting the 1,00,000 level over this decade is quite possible. Below are some facts and figures which justify such possibility and give some insight on long term sensex targets.

1. Over a period of the past 30 years i.e. 1979-2009, BSE Sensex has yielded in IRR of 17.25 percent per annum. If history can form any basis for the future and if the historic average IRR of 17.25 percent per annum has to be maintained, the sensex will reach whopping high levels of 1,00,000 or more by 2020.

2. If we look at the commencement of bull phase of the indian capital markets i.e. from 2003 onwards, the BSE Sensex has yielded an IRR of 26.21 percent per annum. If such an IRR of 26.21 percent has to be maintained, the sensex has to reach a level of 2,23,000 by 2020.

3. If we look at sensex targets by 2050 i.e. after 4 decades from now with an IRR assumption of 17.25 percent per annum, we will see sensex at 1,17,50,000 (1 Crore seventeen lakh fifty thousand)

4. If we have a bull phase for 4 decades, an IRR assumption of 26.21 percent per annum, sensex shall be at 24,05,77,897 (24 Crores plus)

We do not have any idea what is there in store for indian markets in this decade or century. If anybody gets a feeling that the indicative sensex levels discussed here is hypothetical and out of reach, we won't complain because the indicative levels surely are sounding exaggerated. This is done assuming that all the 30 sensex companies are going to contribute to it in line with their respective weightage.

However, it leaves us wondering if equities can't even yield 17.25 percent per annum IRR during this decade because that is the period which is widely accepted to be the "decade of India".

We strongly believe that time has come to build equity portfolio as business cycle is reviving and in coming years, equities can outperform all other asset class. Annualized returns of 15-18% can be achieved by major indices for next couple of years. This may be our conservative estimates, who knows if we resume similar bull run like what we have seen in period of 2003 to Jan 2008, we can easily see Sensex crossing 50,000 by 2015.

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