In next few years Nifty
will be Sensex.
Sounds astounding.
Yes. We at AIMS do believe that in next few years
nifty will be sensex. No, we are not talking about merger of Nifty &
Sensex. We are simply stating that we believe that in next few years nifty will
be at the same level where sensex is at today.
Post-election 2014, we believe
that India is at the cusp of a paradigm shift. 2014 is going to be the
watershed year as far as economic growth of the country is concerned.
Our only advice to our
investors (particularly equity investors) is to buy right & sit tight.
Equity is the only asset class which will create a second earning member in
your family---working (for you) even when you do not.
We always tried to get retail
investors to buy into equity irrespective of market levels. We have always
believed that time in the market is more important than timing the market. It
always works. A number of articles have been written by us around this timeless
belief.
We have done some number
crunching around the belief that Indian economy will continue to grow.
Following is our logic as to
how nifty will be Sensex in a few years.
Current GDP is approximately
110 lac crores.
GDP growth rate conservatively
6% real
Add inflation say 7%. This gives
nominal GDP growth of 13%.
GDP after 10 years will be 373
lac crores.
Last 10 years range of
corporate profits/GDP ratio = 2.70% to 6%.
Corporate profits are approx. 4.40
lac crores. Long term average PE ratio is 16x.
Current market cap is
16*4.4=70 lac crores. (This is close to actual current market cap)
10 years hence, assuming
corporate profit/GDP remains unchanged at 4%, corporate profits will reach a
level of 15 lac crores.
If the PE ratio remains at the
current long term average of 16x, then GDP will be 239 lac crores.
Today when the market cap is approx.
70 lac crores, Nifty is hovering around 6500. Now when the market cap is 239 la
crores, Nifty will be………..22200 a compounded annual growth of 13%.
We accept that this journey of
Nifty to 22200 is not going to be a linear ascent. There will be dips along the
way. This where our belief “time in the market is more important than timing
the market”.
We believe that it’s not
market or the volatility that stops us from earning inflation adjusted returns
from equity market.
It is our fear greed and panic
that prevents us from being a happy satisfied investor.
Ask yourself:-
1. Should
you be invested in any asset class other than equity?
2. What
should be one’s allocation to equity?
3. What
is it NOW?
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