If the Indian economy continues to perform at the present level, the 30-share sensitive index of Bombay Stock Exchange could cross the 25,000 mark in the next three years. This will prove the high networth investor Rakesh Jhunjhunwala correct who, since 2005, has been predicting that the sensex will cross the 25,000 level by 2010.
At present, the industrial sector is growing at over 13%. In April 2007, the rate of growth of the industrial sector was 13.6% at the constant price. If annual inflation of 5% is taken in to account, on the nominal term, the industry should be growing at over 18%. Normally performance of large Indian companies on the whole is better than the overall industrial growth. That means, the sensex stocks turnover should grow at higher than 18% — the nominal Industrial growth rate.
If the profit margin of the companies remained at the present level, the profitability of companies will also grow at over 18% in times to come. In fact, in the past four years, the profitability of sensex companies grew at over 20%.
If the profitability grows at 18.6% in the next three years, the sensex should be at over 25,000 level if the shares continue to quote at the present level of 22 times of the underlying earnings. That means, the sensex would also grow at the same level.
In last four financial years, the sensex has improved at an annual growth rate 44% from 3048 as on March 31, 2003 to 13,072 on the last trading day of the last financial year. In the last two years also, the sensex grew at 42% compounded annually. However, in 2006-07, the sensex improved by only 16% from 11,280. But, in the last over 3 months, the index has increased by 15%.
Going by the future demands in the Indian and global markets for goods and services produced by Indian companies, their performances are likely to continue be good.
In the last two years, Indian companies have emerged stronger and more efficient because of global competition.
China is no more a threat to Indian companies, instead its high growth has provided a huge market to Indian companies.
The future driver for growth in India would be financial markets, real estate, retail and healthcare including pharmaceuticals. Software and auto ancillaries will continue to boom. On top of this all, India has emerged as important investment destination for investors all over the world. Therefore, going by the present trend, sensex might even cross the 25,000 mark much before 2010.
