When will the Sensex touch 25000?

by Manshu on October 10, 2012

in Opinion

I hope regular readers are surprised by the title of this article because this is not the kind of prediction I ever make, and philosophically, I feel that people should avoid “pundits” who make market predictions.

So, why the title? Because the following comment appeared on the Suggest a Topic page last week.

lalit October 7, 2012 at 10:07 pm [edit]

Will Sensex touch 25000 mark? If yes, when and why?

REPLY

Short answer:

I don’t know, and if I did, I certainly wouldn’t have wasted time writing a blog.

Long answer:

Shiv told me a few days ago that he’s getting calls from clients asking what they should do in this rally, and people have a feeling that they’ve been left out on the sidelines and what’s the next course of action for them.

For anyone who has spent any amount of time near the markets, you shouldn’t be surprised with these type of questions, and especially the timing of these type of questions. People get interested only when something goes up, and when it’s down, no one is willing to buy anything.

I believe this is a good time to to think about what you will do when the market falls next.

That’s usually my approach, I’m a regular equity investor, but I’ve pared down my investments in the past few months, and I’m building up cash so that I can take advantage of the next downturn. This does’t mean I expect the market to go down any time soon, just that I feel it won’t be a one way journey where if you don’t invest now, you will never be able to invest at these prices (I  have not stopped completely because I know I can be wrong). I’ve never bought that argument.

In my opinion, having a plan on what you will do when the market falls next is going to be a lot more useful than trying to find out when will Sensex hit 25,000. Before you look for answers, you need to ensure that you’re asking the right question.

{ 33 comments… read them below or add one }

Furqan Qureshi October 10, 2012 at 10:15 am

You hit the nail on the head. I wish all investors think like you and plan for next market down-trend rather than getting excited about the rise in the market.

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Manshu October 10, 2012 at 10:05 pm

I sincerely hope that through OneMint I’ve influenced at least a few people and prevented them from selling their mutual funds and stocks last December when there was so much panic in the market as if Europe will cease to exist tomorrow.

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harinee October 10, 2012 at 10:15 am

25k story has been on for years now and I am surprised people still look for such impossible heights in a short term. There is nothing fantastical happening for a 25k reach and honestly I am surprised by some of the stocks peaking simply based on anticipated growth when all their previous quarters have been in red.

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Manshu October 10, 2012 at 10:03 pm

Better stay away from such stocks.

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Umesh October 10, 2012 at 11:01 am

Hi Manshu

This one line advice is sufficient for a new investor in share market.

“People get interested only when something goes up, and when it’s down, no one is willing to buy anything.”

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Manshu October 10, 2012 at 10:03 pm

Easier said than done though I’m sure 🙂

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DJ October 10, 2012 at 2:36 pm

When we reach 25K is one thing. But, how we get there is another interesting question. It is pointless to wait for or predict a target. Enjoy the journey or rather plan for the journey, which means taking into account all/most possibilities. 25K could happen next quarter, or it may not happen for 10/20 years. By the way, is anyone aware that the Shanghai composite index is at the same level as it was in 2001? Would anyone have forecast that that would happen, along with 10% annual growth for the entire decade?! More interestingly, there was a 2 year period in 2006-2007 where the market tripled. Imagine how much patience one would need to have since 2001 to get those returns.

http://finance.yahoo.com/echarts?s=000001.SS+Interactive#symbol=000001.ss;range=my;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

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Manshu October 10, 2012 at 10:01 pm

Japan is an even greater example right? Nikkei is what 20% of what it was 30 years ago!!!

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DJ October 11, 2012 at 7:10 pm

Maybe, but China is an even better example in today’s context. Young people wouldn’t be able to relate to the projections in 1989 that Japan was about to take over the US and Europe as the largest economy. Actually, I can’t relate to that either as I wasn’t even a teenager then. There’s an interesting anecdotal stat that the Imperial Palace in Japan was valued at more than the entire state of California in 1989. The interesting thing about China is that China hasn’t even collapsed yet like Japan did after 1989. It is growing at an average rate of 10% through the last decade, yet its stock market has returned nothing! As Hugh Hendry said, China is like a cocktail party without the cocktails.

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harinee October 15, 2012 at 3:09 pm

This is interesting. Manshu any posts on why Shanghai index has not risen despite China’s stupendous growth!

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Manshu October 16, 2012 at 5:40 pm

Hang Seng itself has grown in the last ten years, it’s off its lows but then every index every where is. I looked up Google Finance just now and Hang Seng has grown 136% in the last 10 years.

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Shiv Kukreja October 10, 2012 at 2:47 pm

As per Rakesh Jhunjunwala, Sensex would be in six figures (touch 1,00,000 levels) by 2020 and we are talking of only 25,000. Sky is the limit. One more post required – Will the Sensex touch 1,00,000 by 2020? 🙂

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harinee October 10, 2012 at 3:09 pm

Follow-up post! Was RJ smoking weed when he predicted that? 🙂

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Shiv Kukreja October 10, 2012 at 3:23 pm

:-)… Please don’t take him lightly, it is very much possible but some important things should go India’s way. Here is the link to his interview on ET –

http://articles.economictimes.indiatimes.com/2012-10-02/news/34218075_1_pacific-paradigm-advisors-punita-kumar-sinha-rakesh-jhunjhunwala/4

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harinee October 10, 2012 at 4:26 pm

Good interview thanks for the link but I still disagree on the 6-figure index!

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Shiv Kukreja October 10, 2012 at 8:28 pm

For the Sensex to touch 1,00,000 in 2020, profitability of the Sensex companies needs to grow @ 16%-18% annually for the next 8 years, which is very much possible, if the macro environment and government policies both are positive. Currently, the EPS of Sensex companies would be around 1100-1200 and 16%-18% EPS growth will make it reach to around 4,000 in the next 8 years. Sensex getting rerated to 25 PE due to such a high earnings growth will make it touch 1,00,000.

If Sensex can rise 7 times from 2,950 in April 2003 to 21,000 in January 2008, then why not to 1,00,000 from 19,000 in the next 8 years? I know it is very very difficult and even believe that bulls like RJ start making such statements when markets rise, but I still think it is possible with the kind of potential India has.

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Manshu October 10, 2012 at 9:54 pm

Another way of hitting six figures is to have a great inflation rate where six figures don’t mean anything!

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Manshu October 10, 2012 at 9:59 pm

When reading these type of articles I believe it is important to keep in mind that the objective of a newspaper is to sell pageviews and this is a great headline that will definitely make you click through and meet the goal of the newspaper.

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bemoneyaware October 11, 2012 at 10:17 am

Nakal ke liye bhi akal ki zarooraat hoti hai. Really liked these lines of RJ
You cannot make money on borrowed knowledge. Tips are hazardous for health. It is my request to every investor, that analyse the thought process that I have, but do not buy a stock just because I have bought it. I will give you an example. I bought Sterling Holiday Resorts for Rs 75. The stock immediately went to Rs 120 and is now languishing at Rs 80.

Those poor investors who bought lost money. I have a viewpoint of 5 to 7 years and a risk appetite which is much larger than others. Please analyse what my thought process is, but do not try and do necessarily what I am doing. You cannot make money on borrowed knowledge and tips are hazardous for health.

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harinee October 11, 2012 at 1:46 pm

True I liked his honesty!

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Manshu October 10, 2012 at 10:01 pm

That’s a CAGR of roughly 23% in the next 8 years so not totally out of the question I guess.

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Ams October 10, 2012 at 3:50 pm

This is really an interesting post, rather I should say an interesting question.
It is amazing that people still do not understand that timing the market is really not possible.

Manshu, you have very nicely replied to the question. Very well said that no one is interested in the market when it is down.

Thanks,
Amit

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Manshu October 10, 2012 at 9:55 pm

It’s harder to follow this than it is to say it but in my experience if you do this just once, i.e. invest when the markets are down just once in your investing career, you will get into a mindset to do this always and that will be a really useful thing to learn in your investing lifetime.

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Ams October 11, 2012 at 11:33 am

True totally agree with it !

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bemoneyaware October 10, 2012 at 7:25 pm

Very apt question raised and wish we had a crystal ball to know the future.
25000 means what, 1,00,000 in 2020 means what? Let’s look through past to..

Sensex was 100 on 1st 1979 (Base value of Sensex)
Sensex was 1000 on July 25, 1990 – SENSEX touched the four-digit figure for the first time and closed at 1,001 in the wake of a good monsoon and excellent corporate results
Sensex was 6000 on February 11, 2000 The information technology boom helped the SENSEX to cross the 6,000-mark and hit and all time high of 6,006.
Sensex at 7000 on June 21, 2005 News of the settlement between the Ambani brothers boosted investor sentiments and the scrips of RIL, Reliance Energy, Reliance Capital and IPCL made huge gains. This helped the SENSEX crossed 7,000 points for the first time.

SENSEX on January 8, 2008 touched all time peak of 21078 before closing at 20873.

Fall of sensex:
Jan 21, 2008 Sensex saw its highest ever loss of 1,408 points at the end of the session on Monday. The Sensex recovered to close at 17,605.40 after it tumbled to the day’s low of 16,963.96
Oct 27, 2008 Sensex touched 7,697.39 and ended at 8,509.56

Sensex’s trek back to 18000:
Nov 5, 2010 Sensex crosses 21,000 to hit 21,108.64 and end at 21,004.96

While earlier Sensex was moving slowly it galloped between 2005-2008. Why- was it because FII pumped money and because of Lehman crisis it pulled out money . This year again we have FIIs quite active

So rather than looking for a number let’s try to understand the challenges that our stock market faces:
The rate of inflation is high and this has forced RBI to increase repo and reverse repo rates several times. High interest rates have hit the performance of corporate sector in India. Also high interest rates have attracted investors to park their funds in bank deposits and other kinds of debt. Though global recession is over, crisis in Europe (Greece,Spain) has kept global investors away from Indian markets. The pace of reforms in India slowed down and the government did not come out with significant policy changes(or flip flopped) till Sep

From our article Ups and Downs of Sensex

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Manshu October 10, 2012 at 9:52 pm

I feel FIIs coming in and out are more a reflection of what’s happening in India and abroad and you can influence that with good policies.

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Lakshmipathy October 16, 2012 at 1:51 pm

Thanks for the history BeMoneyAware.

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Naresh October 11, 2012 at 8:46 am

taking from the examples of Shanghai composite index & Nikkei index, it would be a sensible inference to say that holding the sensex index or a diversified mutual fund may not be the best way as we may find ourselves at the same place many decades later. So 2 things make out of this : keep selling and go stock specific.

Manshu DJ: woukd you comment please?

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DJ October 11, 2012 at 7:24 pm

Asset allocation is another thing to look at. When today you have 10% returns with short term debt funds, you could use it to diversify away from stock market. Yes. 10% is barely the rate of inflation, so its not enough, but lets say you allocate 50% to debt fund and 50% to stock market, then if the stock market comes down 10% you are at least at break even, and have the opportunity to move the gains from the debt fund into stocks. And, if the stock market gives you 20%, you still get a respectable 15% on your overall portfolio.

Going stock specific is certainly a good idea as value investing works for a lot of people. Especially in our market where the index is very shallow and there are great opportunities outside the index. But, I have no skills in stock picking. It doesn’t work for me. I don’t have the patience. If it works for you, great!

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DJ October 11, 2012 at 7:31 pm

I forgot to add, that if you are like me who doesn’t know how to pick specific stocks, what you can do is try and pick good managers of stock mutual funds. That works for me. I don’t hold the stock indexes, but try to find good/decent funds who will do the stock picking for me, or go with sector funds. Studies show that picking a good fund manager is almost as hard as picking good stocks, but its worked for me so far. As long as one remembers that a good manager won’t always outperform, especially when the fund becomes big and hard to manage like HDFC Top 200 has become.

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Sorabh October 14, 2012 at 3:29 pm

hi DJ,
would you recommend good fund managers ? also any public site where u can track them, i know under moneycontrol you need to know the managers name and then his current MFs performance is given. we dont have a place or i didnt find one, where one can track Fund Managers performance both past and current, no. of years they have been with the fund etc. If you feel its available in valueresearch can you point me to a link or something ?

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DJ October 15, 2012 at 6:40 pm

One can look up the Portfolio Manager details in the Analysis tab of the mutual fund description on valueresearchonline. As well as the investment details tab when looking at multiple mutual funds.

Sankaran Naren is a good fund manager (disclaimer: I am not involved in any way with him or his funds):
http://articles.economictimes.indiatimes.com/2012-03-05/news/31124209_1_telecom-stocks-concept-stocks-volatility

I’m somewhat partial to fund managers who are IIT/IIM graduates, but not blindly! 🙂 Those who graduated a while back and have worked in the industry for some time are worth looking into, because they have a track record.

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sorabh October 15, 2012 at 7:16 pm

Sure – but looking at the tab will give the name of the MF manager, i was wondering if its feasible at all to get a competitive listing of the fund managers and not the funds they manage itself…

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