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Showing posts with label Sensex. Show all posts
Showing posts with label Sensex. Show all posts

Tuesday, June 25, 2019

BSE Small Cap Index & Sensex - Yearly Returns since 2003

BSE Small Cap Index & Sensex - YoY Returns starting April 2003

Small Cap stocks are known to deliver impressive performance when bulls rule the markets, but they get battered during a bearish regime. For instance in 2009, Sensex was one of the best performing markets vis-a-vis its peers. This was on account of the positive impact of the stimulus released by the Government and the election results, which led to confidence among investors and corporate India that a stable government at the centre will be able to bring in a lot of reforms. This saw the index posting a superb return of 81% while the BSE Small Cap Index actually delivered an impressive 123% during the same time horizon.

This could be attributed to the fact that during market upturns small cap companies normally outperform their larger peers, since the latter would have already reached their peak in terms of the potential to grow in the future, while the former actually gets to unlock its growth potential as there is a long way for them to reach the maturity stage.

Below is the table illustrating the % returns delivered by Sensex as well as BSE Small Cap Index every calendar year since 1st April 2003.
BSE Small Cap Index and Sensex YoY Returns
Similarly, if we look at performance of various indices in 2014, Sensex has given returns of 29.9%, however BSE Small Cap Index has given whopping returns of 68.8% during the same period. In fact, 2014 was one of the best year for small cap companies after 2009 as many little known companies with good fundamentals turned multibagger during this year itself. In fact, many of our recommended stocks in 2011, 2012 and 2013 like Cera Sanitaryware, Wim Plast, Acrysil, Kovai Medical, Mayur Uniquoters, TCPL Packaging, Camlin Fine Sciences etc turned 4-Bagger to 10-Bagger stocks during 2014 and 2015.

Looking at current scenario, Sensex has made all time high of 40,312 recently on 4th June and closed at 39,435 today. However, Small Cap Index closed at 14,109 today and is still down by almost -30% from its all time high of 20,183 made on 15th Jan 2018. Money has moved from small caps to very selected large caps during last 1.5 years, this has pushed the Sensex to life time high leaving small cap companies to their 52 week lows. Negative sentiments towards small caps have  not only brought down companies with poor fundamentals down but also the fundamentally good businesses at historically low valuations. Hence, buying right set of small caps with robust business fundamentals now can be an excellent wealth creating multibagger opportunity in long run.


Those who wish to invest in small-cap stocks should do so only if they have a long investment horizon and tolerance for volatility. Small-cap stocks suffer the steepest falls in a bear market and rise the most in a bull market. An investor should stay invested for at least three-five years to allow their portfolio to gain from at least one bull run. If you are looking for multibaggers, stock must have high growth rates along with expanding PE ratios. The price we pay for the stock is important as it will determine whether there is enough scope left for a PE expansion to take place. 

Benefits of Investing in Small Caps

1. Huge growth potential: The first and the most important advantage that a small cap stock gives you is their high growth potential. Since these are small companies they have great scope to rise as opposed to already large companies.

2. Low Valuations: Usually small cap stocks are available at lower valuations compared to mid & large caps. Hence, if you invest in good small cap companies at initial stage and wait for couple of years,  you will see price appreciation not only because of growth in top line and bottom line but also due to rerating which happens with increase in market capital of the company.

3. Early Entrance Advantage: Most of the fund house and institutions do not own small caps with low market cap due to less liquidity which make it difficult for them to own sufficient no. of shares. This gives retail investors an opportunity to be an early entrant to accumulate such companies shares. When company grows in market cap by delivering consistent growth and becomes more liquid, entry of fund houses and institutions push the share prices up giving maximum gains to early entrants.  

4. Under–Researched: Small cap stocks are often given the least attention by the analysts who are more interested in the large companies. Hence, they are often under - recognized and could be under-priced thus giving the investor the opportunity to benefit from these low prices.

5. Emerging Sectors: In a developing economy where there are several new business models and sectors emerging, the opportunity to pick new leaders can be hugely beneficial. Also the disruptive models in the new age is leading to more churn and faster growth amongst the nimble footed smaller companies.

Concerns while Investing in Small Caps

1. Risk: The first and the most important disadvantage a small cap stock is the high level of risk it exposes an investor to. If a small cap company has the potential to rise quickly, it even has the potential to fall. Owing to its small size, it may not be able to sustain itself thereby leading the investor into great loses. After all, the bigger the company, the harder it is for it to fall.

2. Volatility: Small cap stocks are also more volatile as compared to large cap stocks. This is mainly because they have limited reserves against hard times. Also, it in the event of an economic crisis or any change in the company administration could lead to investors dis-investing thereby leading to a fall in prices.

3. Liquidity: Since investing in small cap stocks is mainly a decision depending upon one’s ability to undertake risk, a small cap stock can often become illiquid. Hence, one should not depend upon them for an important life goal.

4. Lack of information: As opposed to a large cap company, the analysts do not spend enough time studying the small cap companies. Hence, there isn’t enough information available to the investor so that he can study the company and decide about it future prospects.

Tide to turn favourable for Small Cap Stocks

If you analyse the bear phase of stock markets cycle since 1990, you will find that such bear phase has not lasted for more than 18 months. Small cap index which made all time high of 20,184 in Jan 2018 with end of its bull run corrected by -35% from its peak in Feb 2019 and we believe bottom in broader markets is already in place with lows made in Feb 2019 post Pulwama attack.

Moreover, whenever BSE Small Cap Index has delivered significantly high negative returns in a particular year during last 16 years, it has delivered double digit positive returns the very next year. The divergence between Sensex / Nifty and BSE Small Cap & Mid Cap Index will not last for long going forward considering valuations gap emerging between large caps in comparison to mid & small cap stocks.

Greed which was seen in broader market (small & mid caps) in the year 2016 and 2017 has turned to fear these days. This is the time to do opposite of the herd, its time to be greedy when others are fearful. If you are not investing in equities during these opportune times and taking the back seat, you are making a bigger mistake.


Remember, in the long run, you do not make decent returns on your investments by following the herd i.e. when everyone is buying stocks; instead you get handsome returns on our investments by investing in stocks at significantly low prices as no one else is buying, and by selling to them when they come back in herd due to greed in future.


Be a disciplined investor who keep on investing in systematic way irrespective of market conditions and not an emotional investor who usually buy stocks during bull phase when stock prices are moving higher because of greed and sell them in panic during bear phase due to severe fall in stock prices, making mistake of buying high and selling low.

Download Potential Multibagger Stock 2019 Report for Free!

Tuesday, October 22, 2013

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".

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.

Read More >>> Stellar Performance: 5 Hidden Gems of 2011 have given 100% plus ROI

Thursday, October 4, 2012

Last 2 Years Performance of Sensex, Mid & Small Cap Index

Starting Sept'12, FIIs are continuously pouring their money in India. Since last one month, Nifty and Sensex have risen by almost 8%. Thanks to continuous inflows from FIIs which are buying into Indian equities. Credit goes to FED announcement of QE3 which increased liquidity and inflows in global stock markets and also big annoucement on much awaited reforms from our Government. Its liquidity driven market, hence concerns related to fundamentals like high inflation, high interest rates, rising crude oil prices, high fiscal deficit along with weak IIP numbers still remains.
Due to these factors, retail participation is still low and DIIs are net sellers in Indian stock market on almost daily basis. Can you imagine, retail participation in India in terms of investments in stock market was at 4 years low in Aug-Sept 2012.

But good times are going to come sooner than later, in case of any corrections, DIIs will get into the market and buy on dips. Another positive is weakness in dollar and Rupee appreciation which hits 5 month high. This will ease some pressure of govt in terms of importing crude oil.

There are hundred of stocks which tested 52 week lows in the month of July and August and now are available at decent valuations.

Lets look at Past Performance of Small and Mid Cap Index - Last 2 Years

Small Cap Index during end of Sept 2010 was at around 10000 which made a high of 11367 on 11th Nov 2010 and today closed at 7186. Hence, Small Cap Index has given negative returns of -28% in last 2 years. If we look at Mid Cap Index, it was at around 8000 levels two years back and today closed at 6704, down by -16% in last 2 years. Similarly, Sensex is down by -6% in last 2 years.

What a disappointing performance of both indices including Sensex? A strong reason why your mutual funds are not performing. Isn't it? But are your fund managers smart enough to outperform major indices. We don't think so, more than 80% of equity mutual fund schemes have underperformed major indices which means that your mutual fund is giving you lesser returns compared to these indices.

Is this really bad? Are you worried? You should not!

Its a fact that nobody in this universe can time the stock market but its wise for medium & long term investors to invest during tough times. Using this approach, Investors can bet on stocks which are fundamentally strong and are trading below their intrinsic value, you can get them cheap due to poor economic conditions and negative sentiments in market. And once sentiments turn to positive, it rewards investors who entered during market lows giving great returns to them on their investments. A right approach towards equities - buy at low, sell at high. But more important is to invest in right stocks.

Hence, you must consider this as an opportunity to invest in fundamentally good stocks for medium to long term.

So in which stocks you can invest in?

You can invest in small, mid as well as large cap stocks of sectors which are heavily discounted. Small and Mid cap stocks are more volatile compared to large cap because of low liquidity. Hence, during bad times, they experience more pain in terms of falling prices. But good small and mid cap companies with sound fundamentals can give you multibagger returns in medium to long term.

Past performance of Saral Gyan - Hidden Gems

It gives us immense pleasure to share that Saral Gyan - Hidden Gems (unexplored multibagger micro/small cap stocks) outperformed all major indices during last two year giving excellent returns to Hidden Gems subscribers during bad times of stock market.

7 out of 21 Saral Gyan Hidden Gems stocks (Sept 2010 - May 2012) gave more than 100% returns to our investors. Average returns of Hidden Gems (as on date) is +36% (maximum average returns is 70%) compared to negative average returns of -5% of small cap index. Moreover, we suggested partial profit booking in those stocks which have given more than 100% returns in short span of time. Hence actual returns are more compared to average return as indicated in below table.

Below is the performance of Hidden Gems of last 2 years (upto Jun'12) recommended by our equity analyst team:

(Click on the image if not visible)

Below are the 4 Hidden Gems of 2011 which have given more than 100% returns.

You can download complete research report using below links:

1. Camlin Fine Sciences (BSE Code - 532834) : Camlin Fine Sciences was recommended by our equity analysts at price of 60 (price adjusted due to stock split) considering positive developments in the company. And after 8 months suggested partial profit booking by selling 50% holding of Camlin Fine Sciences at price range of Rs. 130 (price adjusted due to stock split), returns of 115% in short span of 8 months. Remaining 50% stock holding is free for Hidden Gem subscribers.

Camlin Fine Sciences Research Report - Read/Download

2. Cravatex (BSE Code - 509472) : Cravatex belongs to consumer segment and was attractively valued before bonus issue, company own rights to sell brands like Fila and Proline and was expanding its reach to customers in different geographies of the country, stock was recommended at price of Rs. 700 (bonus adjusted) in May 2011 by our equity analysts. Stock made high of Rs. 799 in April this year registering maximum returns of almost 130%. Partial profit booking was recommended above 100% returns.

Cravatex Research Report - Read/Download

3. WPIL (BSE Code - 505872) : Our equity analysts noticed that WPIL promoters are doing aggresive open market purchase. Later our analysts tried to dig out the reasons and found that WPIL has made few acquisition/ tie ups globally to synergize their business and is going to be benefitted tremendously in coming quarters, same was reflected later in company's quarterly results. Stock recommended at average price of Rs. 182.5 made high of Rs. 442 during this week. We suggested partial profit booking to our subscribers by selling 50% of stock holding at Rs. 425 (returns of 130%) and holding the remaining quantity for long term.

WPIL Research Report - Read/Download

4. Cera Sanitaryware (BSE Code - 532443) : Cera Sanitaryware was attractively priced and was trading below its intrinsic value in Dec 2011. Our analysts were confident enough about decent returns in this scrip and suggested a buy at price of Rs. 157, stock has made 52 week high of 381 recently and doubled the investments of our subscribers in short span of 8 months. As valuations are still attractive, we suggest our subscribers to hold the stock.

Cera Sanitaryware Research Report - Read/Download

Shri Adhikari Brother - Sept'10, De Nora Ltd - Nov'10 and Indag Rubber - Jan'12 also gave 100% plus returns, partial profit booking in these stocks already suggested to our members.


Equity analysts team at Saral Gyan gives 100% to identify the best investment candidates, objective is not only to protect your capital but also to grow it at healthy rate.

We do not just recommend the stocks but also share the authentic and unbiased research reports which help you to understand the company's business along with growth opportunities and guide you to make an educated investment decision.

Grab Best 3 Small Cap Stocks

Now, you have an opportunity to grab best 3 small cap stocks by subscribing to Hidden Gems annual subscription. Yes, you read it right! We will share 3 Hidden Gems research reports published in past by our equity analysts team in which you can make fresh investments for long term.

These 3 Hidden Gems are the small cap companies which belong to different sectors and can do extremely well on bourses in next 4-6 quarters. These companies have registered impressive  topline and bottom line growth in FY2011-12 and Q1 of this financial year, have limited downside risk and can be added in your portfolio.

Subscribe to Hidden Gems and Grab Best 3 Small Cap Stocks to power your equity portfolio. You need not to pay any additional cost other than annual subscription charge (Rs. 7500 / $ 150) for grabbing best 3 Hidden Gem stocks to add in your portfolio.

Under annual subscription, you with receive total 12 Hidden Gems monthly research reports along with 3 stocks research reports of past for fresh investment. We will also share Hidden Gems - Flash Back report (update of 21 previously recommended Hidden Gems).

Now you can pay online using your credit card, online fund transfer using NEFT of by depositing cheque. Click here to view the payment options available.

Do write to us in case of any queries.

Wish you happy & safe investing!


Team - Saral Gyan.
Saral Gyan Capital Services

Wednesday, September 5, 2012

Last 2 Year Performance of Sensex, Mid & Small Cap Index

High Inflation, high interest rates, rising crude oil prices, weak IIP numbers, GDP growth slipping below 6%, slowdown in trade and exports, europe crisis - All these factors are hurting sentiments of investors and keeping them away from investing in equities. Can you imagine, retail participation in India in terms of investments in stock market is at 4 years low.

There are hundred of stocks which not only tested 52 week low but now are available at 3-5 years low. After such a severe correction in prices of small and mid cap stocks, is there more pain left for investors?

Lets look at Past Performance of Small and Mid Cap Index - Last 2 Years

Small Cap Index on 6th Sept 2010 was at 10095 which made a high of 11367 on 11th Nov 2010 and today closed at 6391. Hence, Small Cap Index has given negative returns of -37% in last 2 years. If we look at Mid Cap Index, it was at 7962 two years back and today closed at 6024, returns of -24% in last 2 years. Similarly, Sensex also gave negative returns of -14% in last 2 years.

What a disappointing performance of both indices including Sensex? A strong reason why your mutual funds are not performing. Isn't it? But are your fund managers smart enough to outperform major indices. We don't think so, more than 80% of equity mutual fund schemes have underperformed major indices which means that your mutual fund is giving you lesser returns compared to these indices.

Is this really bad? Are you worried? You should not!

Its a fact that nobody in this universe can time the stock market but its wise for medium & long term investors to invest during tough times. Using this approach, Investors can bet on stocks which are fundamentally strong and are trading below their intrinsic value, you can get them cheap due to poor economic conditions and negative sentiments in market. And once sentiments turn to positive, it rewards investors who entered during market lows giving great returns to them on their investments. A right approach towards equities - buy at low, sell at high. But more important is to invest in right stocks.

Hence, you must consider this as an opportunity to invest in fundamentally good stocks for medium to long term.

So in which stocks you can invest in?

You can invest in small, mid as well as large cap stocks of sectors which are heavily discounted. Small and Mid cap stocks are more volatile compared to large cap because of low liquidity. Hence, during bad times, they experience more pain in terms of falling prices. But good small and mid cap companies with sound fundamentals can give you multibagger returns in medium to long term.

Now lets review performance of Saral Gyan - Hidden Gems

It gives us immense pleasure to share that Saral Gyan - Hidden Gems (unexplored multibagger micro/small cap stocks) outperformed all major indices during last two year giving excellent returns to Hidden Gems subscribers during bad times of stock market.

6 out of 21 Saral Gyan Hidden Gems stocks (Sept 2010 - May 2012) gave more than 100% returns to our investors. Average returns of Hidden Gems (as on date) is +26.5% (maximum average returns is 64%) compared to negative average returns of -15.3% of small cap index. Moreover, we suggested partial profit booking in those stocks which have given more than 100% returns in short span of time. Hence actual returns are more compared to average return as indicated in below table.

Below is the performance of Hidden Gems of last 2 years (upto Jun'12) recommended by our equity analyst team:

(Click on the image if not visible)

Below are the 4 Hidden Gems of 2011 which have given more than 100% returns.

You can download complete research report using below links:

1. Camlin Fine Sciences (BSE Code - 532834) : Camlin Fine Sciences was recommended by our equity analysts at price of 60 (price adjusted due to stock split) considering positive developments in the company. And after 8 months suggested partial profit booking by selling 50% holding of Camlin Fine Sciences at price range of Rs. 130 (price adjusted due to stock split), returns of 115% in short span of 8 months. Remaining 50% stock holding is free for Hidden Gem subscribers.

Camlin Fine Sciences Research Report - Read/Download

2. Cravatex (BSE Code - 509472) : Cravatex belongs to consumer segment and was attractively valued before bonus issue, company own rights to sell brands like Fila and Proline and was expanding its reach to customers in different geographies of the country, stock was recommended at price of Rs. 700 (bonus adjusted) in May 2011 by our equity analysts. Stock made high of Rs. 799 in April this year registering maximum returns of almost 130%. Partial profit booking was recommended above 100% returns.

Cravatex Research Report - Read/Download

3. WPIL (BSE Code - 505872) : Our equity analysts noticed that WPIL promoters are doing aggresive open market purchase. Later our analysts tried to dig out the reasons and found that WPIL has made few acquisition/ tie ups globally to synergize their business and is going to be benefitted tremendously in coming quarters, same was reflected later in company's quarterly results. Stock recommended at average price of Rs. 182.5 made high of Rs. 442 during this week. We suggested partial profit booking to our subscribers by selling 50% of stock holding at Rs. 425 (returns of 130%) and holding the remaining quantity for long term.

WPIL Research Report - Read/Download

4. Cera Sanitaryware (BSE Code - 532443) : Cera Sanitaryware was attractively priced and was trading below its intrinsic value in Dec 2011. Our analysts were confident enough about decent returns in this scrip and suggested a buy at price of Rs. 157, stock has made 52 week high of 381 recently and doubled the investments of our subscribers in short span of 8 months. As valuations are still attractive, we suggest our subscribers to hold the stock.

Cera Sanitaryware Research Report - Read/Download

Equity analysts team at Saral Gyan gives 100% to identify the best investment candidates, objective is not only to protect your capital but also to grow it at healthy rate.

We do not just recommend the stocks but share authentic and unbiased research reports which help you to understand the company's business along with growth opportunities and guide you to make an educated investment decision.

Grab Best 3 Small Cap Stocks

Now, you have an opportunity to grab best 3 small cap stocks by subscribing to Hidden Gems annual subscription. Yes, you read it right! We will share 3 Hidden Gems research reports published in past by our equity analysts team in which you can make fresh investments.

These 3 Hidden Gems are the small cap companies which belong to different sectors and can do extremely well on bourses in next 4-6 quarters. These companies have registered impressive  topline and bottom line growth in FY2011-12 and Q1 of this financial year, have limited downside risk and can be added in your portfolio.

So what are you waiting for? Subscribe to Hidden Gems and Grab Best 3 Small Cap Stocks to power your equity portfolio. Good News! You need not to pay any additional cost other than annual subscription charge (Rs. 7500 / $ 150) for grabbing best 3 Hidden Gem stocks. Under annual subscription, you with receive total 12 Hidden Gems monthly research reports along with 3 stocks research reports of past for fresh investment. Hurry! Subscribe today.

Now you can pay online using your credit card, online fund transfer using NEFT of by depositing cheque. Click here to view the payment options available.

Do write to us in case of any queries.

Wish you happy & safe investing!


-Saral Gyan Team.

Tuesday, June 19, 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".

Thursday, June 3, 2010

History of Indian Stock Market

Formation of various Stock Exchanges in India

In the year 1920, a stock exchange was established in Madras called “The Madras Stock Exchange”. “The Madras Stock Exchange Association Pvt. Ltd.” was established in the year 1941. The Lahore Stock Exchange was formed in the year 1934. However, in the year 1936, after the Punjab Stock Exchange Ltd. came into existence, the Lahore Stock Exchange merged with it.

In Calcutta, a second Stock Exchange by name “The Bengal Share & Stock Exchange Ltd.” was established in the year 1937 and likewise in the year 1938, Bombay Stock Exchange also witnessed the formation of a rival Stock Exchange in the name of “Indian Stock Exchange Ltd.”

The U.P. Stock Exchange was formed in Kanpur and the Nagpur Stock Exchange Ltd. in 1940. The Hyderabad Stock Exchange Ltd. was incorporated in the year 1944. Two stock exchanges which came into being in Delhi by the name “The Delhi Stock & Share Brokers Association Ltd.” and “The Delhi Stocks & Shares Exchange Association Ltd.” were amalgamated into “The Delhi Stock Exchange Association Ltd.” in the year 1947.

The depression witnessed after the independence led to closure of a lot of exchanges in the country. Lahore Stock Exchange was closed down after the partition of India, and later on merged with the Delhi Stock Exchange. Bangalore Stock Exchange Limited was registered in 1957 and got recognition only by 1963. Most of the other Exchanges were in a miserable state till 1957 when they applied for recognition under Securities Contracts (Regulations) Act, 1956. The Exchanges that were recognized under the Act after it was enacted were Bombay, Calcutta, Madras, Ahmedabad, Delhi, Hyderabad, Bangalore and Indore.

Later during 1980’s, many more stock exchanges were established such as Cochin Stock Exchange (1980), Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982), Pune Stock Exchange Limited (1982), Ludhiana Stock Exchange Association Limited (1983), Gauhati Stock Exchange Limited (1984), Kanara Stock Exchange Limited (at Mangalore, 1985), Magadh Stock Exchange Association (at Patna, 1986), Jaipur Stock Exchange Limited (1989), Bhubaneswar Stock Exchange Association Limited (1989), Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989), Vadodara Stock Exchange Limited (at Baroda, 1990), Coimbatore Stock Exchange and Meerut Stock Exchange.

A new phase in the Indian stock markets began in the 1970s, with the introduction of Foreign Exchange Regulation Act (FERA) that led to divestment of foreign equity by the multinational companies, which created a surge in retail investing. The early 1980s witnessed another surge in stock markets when companies such as Reliance, which created a new equity culture, accessed the capital markets.

Formation of Sensex (BSE)

Sensex, the 30-stock index of the Bombay Stock Exchange, was introduced in 1986 constituting stocks of large and established companies from different sectors. The base year for the index was 1978 -79.

During 1990s, India witnessed radical changes in its policies regarding Foreign Direct Investments and Foreign Institutional Investments as part of the liberalization policies. In 1990, the BSE crossed the 1000 mark for the first time. It crossed 2000, 3000 and 4000 marks in 1992.

The up-beat mood of the market was suddenly vanished with Harshad Mehta scam. It came to public knowledge that Mr. Mehta, also known as the “big bull” of Indian stock market, diverted large amount of funds from banks through fraudulent means. Millions of small-scale investors became victims to the fraud as the Sensex plunged shedding 570 points.

Formation of Securities & Exchange Board of India (SEBI)

To prevent such frauds, the Government of India formed The Securities and Exchange Board of India or SEBI, through an Act in 1992. With the act, SEBI became the statutory body that controls and regulates the functioning of stock exchanges, brokers, sub-brokers, portfolio managers, investment advisors etc. The objective of SEBI is to protect the interests of the investors in securities and to promote the development of securities markets and to regulate the securities markets. The scope and functioning of SEBI has greatly expanded with the rapid growth of securities markets in India.

Formation of National Stock Exchange (NSE)

While going global, it became a necessity to lift the Indian stock market trading system on par with the international standards. On the basis of the recommendations of high powered Pherwani Committee, the National Stock Exchange was incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and Investment Corporation of India, Industrial Finance Corporation of India, all Insurance Corporations, selected commercial banks and others.

NSE enables fully automated screen-based trading mechanism which strictly follows the principle of an order-driven market. Trading members are linked through a communication network which allows them to execute trade from their offices. The prices at which the buyer and seller are willing to transact will appear on the screen and when the prices match the transaction will be completed. It ensures greater functional efficiency supported by totally computerized network.

Within one year of the onset of equity trading at NSE, it became India’s most liquid stock market. Further, NSE is said to have generated a dynamic process of change in the securities industry. It directly spawned new institutions like the Clearing Corporation and Depository and played a vital role in injecting new ideas into the securities markets such as derivatives trading.

Formation of BOLT System

In 1995, the BSE also replaced its open outcry trading system with totally automated trading known as the BSE Online trading, or BOLT, system. The BOLT network was expanded nationwide in 1997.

Decade in building one of the best stock market across globe

The last decade of 20th century has been exceptionally good for the stock markets in India. In the back of wide ranging reforms in regulation and market practice as well as growing participation of foreign institutional investment, stock markets in India have showed phenomenal growth in the 90’s. Investor base continued to grow from domestic and international markets.

Stock markets became intensely technology and process driven, giving little scope for manipulation. Electronic trading, digital certification, straight through processing, electronic contract notes, online broking have emerged as major trends in technology. Risk management became robust reducing the recurrence of payment defaults. Product expansion took place in a speedy manner. Indian equity markets now offer, in addition to trading in equities, opportunities in trading of derivatives in futures and options in index and stocks. Even modern financial instruments like ETFs are showing gradual growth.

Within five years of introduction of derivatives, Indian stock markets now are ranked first in stock futures and fourth in index futures. Indian stock markets are transaction intensive and thus rank among the top five markets in this regard. Stock exchange reforms brought in professional management separating conflicts of interest between brokers as owners of the exchanges and traders/dealers. The demutualisation and corporatisation of all stock exchanges is nearing completion and the boards of the stock exchanges now have majority of independent directors. Foreign institutions took stake in India’s two leading domestic stock exchanges. While NYSE Group led consortium that took stake in the National Stock Exchange, Deutsche Bourse and Singapore Stock Exchange bought equity in the Bombay Stock Exchange Ltd.

In today’s global scenario that witness the flow of capital and goods without borders, India is keen to go along with the trend with its reforms like improving the investment climate by allowing more and more foreign investors to invest in equity and debt markets, allowing Indian companies to issue ADRs and GDRs in international exchanges and enable them to raise resources through wide range of financing routes as well as permitting Indian companies and individuals to invest abroad.

Wednesday, June 2, 2010

Indian Stock Market Indices - Sensex & Nifty

Sensex & Nifty are more often interpreted collectively with different market records, as both indices are the roots of the Indian stock market. Representing the BSE and NSE respectively, Sensex & Nifty mirror the value of a company in the active stock market.

A group of 30 companies marks Sensex whereas Nifty exhibits the performance of 50 companies. If you read or listen to any Sensex news, Nifty news automatically follows, as the Indian market is incomplete without the figures displayed at these two stock exchange bases. Given the high volatility of the indian stock market represented by the Sensex & Nifty, the layman may find it difficult to understand the fluctuating nature. With expertise, this drawback can be negated.

BSE Sensex puts a close attention on Indian companies and corporate conglomerates like Reliance, Tata, Bharti Airtel, DLF Limited, HDFC, Grasim Industries etc. These companies are the active part of the cluster of thirty companies which run with this index. Index weightage is derived and calculated by using "free-float market capitalization" strategy that proved to be very effective in long run.

As an investor, you can stay informed about the rise and fall of stock prices by watching either Sensex news or the Sensex index. Making intelligent assessments and acting consequently to be successful in the stock market. The BSE has over 6000 companies in its listing, the greatest number in the world. With its 134 plus years of market presence and given its breakthrough role in the formation of the Indian capital market, Sensex has come a long way and the era of the Indian stock market is calculated from the day of the founding of the BSE. Any investment involves the risk factor and the BSE is no exception. Similar is the case of NSE. Stay updated with the latest performance of the Sensex & Nifty to experience a winning rim.

Market fluctuation is obvious in the Indian stock market, and if you are finely tuned to investment strategies, you will definitely gain. Many investment and stock broking platforms like Reuters India provide effective advices and quotes including the A-Z of the performance of Indian markets and world markets. Moreover, the stock recommendations displayed at such platforms, can bring a difference in your investment approach.

Tuesday, June 1, 2010

P/E Ratio of Indian Stock Market: 1990 - 2015

P/E ratios in India during 1990 and 2005

As of December 31, 2009, there were 23 government-recognized stock exchanges in India and there were more than 9,700 companies listed on these exchanges. The Bombay Stock Exchange (BSE) lists about half of these companies (4,929).

BSE happens to be the oldest in Asia, having been established as "The Native Share & Stock Brokers Association" in 1875. As of December 31, 2009, the market capitalization of the companies listed on BSE was approximately USD 1,400 billion (approximately 1.1 times India’s annual GDP).

Since BSE has the most well-known indices within the Indian stock market, we focus on a few of these indices in this article: SENSEX (with a base of 100 in 1978-79), BSE-100, and BSE-500 (with a base of 1,000 in 1999 and comprising 500 listed companies in various Indian stock exchanges).

Ignoring dividends, both SENSEX and BSE-100 have grown by 13.4% annually in Indian Rupee terms during April 1, 1991 and March 2005. On March 31, 2005, SENSEX was valued at 6,492.82 (with a P/E ratio of 16.05) and BSE-100 was valued at 3,481.86 with a P/E ratio of 13.72. This growth rate can be partitioned into the following three components:

1. The companies comprising SENSEX and BSE-100 have individually grown at an average annual rate of 9% or more (in real terms) and 15% (in nominal terms).

2. As shown in the table 1 given below, the price-earnings ratio for companies listed in SENSEX went down from 19.68 in March 1991 to 16.05 in March 2005, i.e., an average drop of approximately 1.5% per year. Similarly, the price earnings ratio for companies listed in BSE-100 dropped by approximately 2.4% per year.



3. The difference between (1) and (2) approximates the average annual growth rate of SENSEX and BSE-100 of 13.4% as mentioned above.

Predictions regarding the Indian Stock Markets during 2005 and 2015

The following three main components are likely to result in a strong upward movement of Indian markets:

1. During April 2005 and March 2015, companies listed in SENSEX, BSE-100, and BSE-500 are expected to grow at an annual average rate of 11% (in real terms) and 17% (in nominal terms).

2. In March 31, 2005, the firms in SENSEX were trading at an average P/E ratio of 16.05 whereas they were trading at an average price earnings ratio of 22.8 during 1991 and 2005. Our analysis shows that by December 2015, these firms (that are part of SENSEX, BSE-100, and BSE-500) are likely to trade at an average P/E ratio of 22.8 also, partly because of volatility and partly because the annual growth rates of these companies is quite high when compared to their counterparts in the United States and other developed countries.

3. As a comparison, during the past fifteen years, an average firm in China’s stock market has been trading at an average price-earnings ratio of 23. Clearly, on one hand, since the stock markets in the United States are much bigger and more mature, the companies listed there likely to command a higher premium; on the other, since these earnings are computed on the “last twelve month” basis and since the companies in India (and other emerging countries) are growing more rapidly – as much as 7-8% more – than their counterparts in the United States, we believe that the SENSEX, BSE-100, and BSE-500 will trade at an average price/earnings ratio of 22.8 (during 2005 and 2015).

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