BSE Sensex to touch 280,000 in year 2050
BSE Sensex to touch 280,000 in year 2050
http://economictimes.indiatimes.com/articleshow/976711.cms
Quote:
The equity market is on a roll, and nobody seems to mind. Yes, it’s the right time to uncork that Dom Perignon.
The party’s just begun, my friend. And you’ll be surprised if we tell you how far our Indian markets could go. How about beyond 280,000 level for the sensex and over 89,000 level for the Nifty by ’50. No, it’s no faux pas or a typo.
And, it’s definitely not New Year’s hangover. It’s for real, and a distinct possibility. If you don’t believe what you just saw or rather read in the headline, we shall also show you how we arrived at our conclusions. Mind you, these are very very conservative estimates.
Think long-term and you will find that things are all hunky dory. After all, the geniuses don’t simply say that returns from the equity market outperform returns from all other investment class in the long term.
And that’s exactly what the Indian equity market will deliver. How does this sound – you can actually multiply your money by a little over 42 times if you hold it long enough.
Rs 1,000 invested in the market right now will be slightly more than Rs 42,000 by ’50. This is based on the extremely conservative assumption that the BSE sensex will be around 280,000 level and the NSE Nifty at 89,000 level by ’50.
If the large number makes your eyes pop out, worry not. There is sound logic behind the above argument. The basic argument is, that irrespective of short-term fluctuations, over long term, equity returns will grow at rates at least equal to the growth rate of corporate profits.
The next argument is that corporate profits will grow at rates at least equal to the growth rate of the economy over long periods. Both these are fairly well known and accepted notions, so you can trust us on those assumptions.
Next, we borrowed from the by now well-known and widely accepted research document – the ‘BRIC’ report of Goldman Sachs. The report states that India will be one of the strongest economies by 2050, growing at over real rate of 5% for the next 30 years and around 5% thereafter.
The report states that by 2050, India’s GDP would be $27,803 bn from the present levels of $603 bn. In other words, India’s nominal GDP – the real rate plus inflation – will grow at a compounded annual growth rate (CAGR) of 8.5%.
So, if one believes this argument, then one can safely assume corporate profits and ergo, the BSE sensex can also grow at 8.5% compounded rate till 2050. The next step was simple; a little bit of spread-sheet research and one gets the sensex number for 2050 – close to 280,000 and the Nifty – at a little over 89,000.
And, this is a rather conservative number, because it keeps the same market capitalisation to GDP ratio as it exists now. Current traded market capitalisation (mcap) to GDP ratio is around 58%.
This is lower than that of advanced countries, which India will be by 2050. For developed economies, the ratio is at least 100% or more. So, even for India, the ratio would ideally inch higher. As another bit of random information, with a GDP of $27,803 bn, the total traded mcap of the Indian bourses would be $16,230 bn in 2050, or more than $16 trillion. Similarly, the mcap of sensex stocks would be more than $7 tn and that of Nifty will be more than $9 tn.
For those who don’t want to wait too long, we have calculated a five-yearly index levels . By ’10, the sensex would be at 9395, 14,270 by ’15, and 21,279 by ’20. The Nifty, similarly, will be at 2982 by ’10, 4530 by ’15 and 6755 by ’20. Overall, the indices will be growing approximately 50% every five years and so will the m-cap.
And, for those who want to factor in the rupee appreciation, both the sensex and the Nifty would be growing at 6.3% CAGR. Thus, rupee adjusted ’50 sensex levels would be almost 110,000 and that of the Nifty 35,000.
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31st December 2004, 09:12 PM
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