Lot of fund managers and analysts give price target for Sensex every year

But it’s not rocket science most of them give it by multiplication of two figures

EPS (Earning Per Share) * PE (Price Earnings Ratio)

Sensex Price target = EPS (Estimated) * PE (Estimated)

For example if we want Sensex price target for financial year 2015-16 then

Sensex Target = EPS (1608) * PE (20) = 32160

Above calculation seems easy but we have to see its limits also.

Sensex EPS is depend upon EPS of 30 companies include in Sensex.

If 5/6 big companies estimated EPS get wrong then target also get affected.

From Dec. 2007 to Jan. 2008 Sensex gains was 1000 ever week and it was at 21200.

And that time PE was 28 which were extreme high though some Gurus gave target of 25000 that time.

On believe them whom did not take profit and keeps their investment continue, what happened was history.

Now PE is 20 so it’s not high but do not use only above calculation for investing.

Thanks

Nimish Shah