Raamdeo Agrawal predicted that the SENSEX can touch 2,00,000 in the upcoming 10 years. There’s a philosophy behind coming out with this figure. Are the assumptions taken by Raamdeo Agrawal practical, if yes, then up to which extent? Let’s find out as we go ahead in this article
- SENSEX is currently trading at around 50,000 levels and to make it to 2,00,000 which is quadrupled of the current point mark, it has to double itself 2 times in 10 years.
- For this, we have the rule of 72, which tells that to double the amount in a period what interest is required.
- So we have to divide 72 by the no. of years in which we have to double the amount, then, we get the rate of interest required to achieve that target.
- For example, if we want the current market to get doubled in the upcoming 5 years, then the calculation will go like- 72/5 = 14.4.
- Hence, the market should grow with a CAGR of 14.4% to get this target done.
What are the assumptions that need to be there to achieve the growth number we expect:
GDP of the country:
- The Real Gross Domestic Product (GDP) in the country should be growing at a pace of 7% to 8%.
- Also, there should be a good amount of inflation, i.e., between 4% and 6%.
- If this holds, the Nominal Gross Domestic Product (GDP), which is real GDP + inflation, in the country will grow at the pace of around 12% to 14%.
- Also, the 30 companies that constitute SENSEX should grow at a pace more than the economy, i.e., around a CAGR of 15%.
- But there’s a catch, the SENSEX is currently at around 52,000 and with a P/E of around 32.
- So, if only the index grows with a CAGR of 15% and the P/E stays at this level of 32, then SENSEX can touch this mark.
- The current P/E is around 50% higher than the average long-term P/E which is very difficult to sustain in long run.
- As the markets are already expensive and looking to go with this pace for 10 years is being very optimistic.
The earnings of the companies are improving, so we can see the upcoming P/E go down. The SENSEX consists of the top 30 Large-Cap companies, so we expect that getting the growth figure is possible. Maybe the target can’t be achieved in 10 years but we can surely look ahead to get this done in the upcoming 12 to 14 years.