Prediction of Sensex by 2030: A Quantitative Analysis
As of 2020, I am inclined to provide a quantified answer to the question: What do we expect the Sensex to be by 2030? While I cannot guarantee the accuracy of any prediction, the use of historical data and logical reasoning can offer some valuable insights.
Historical Performance of Sensex
The Sensex, the benchmark index of the Bombay Stock Exchange, has shown an average compound annual growth rate (CAGR) of around 15% over the last 40 years (as of 2020). Given this historical performance, it is reasonable to assume that if the index maintains a CAGR of approximately 12% over the next decade, it could be in the range of 95,000-100,000 by 2030.
Factors Influencing Future Trends
Between now and 2030, there are 10 years. The immediate future is uncertain due to ongoing economic stabilization. However, examining the historical performance of the Sensex and Nifty can give us valuable clues. The Sensex typically sees most of its gains in the middle five years of a decade, with the final two years often correcting the excesses.
By 2022, it is expected that the Sensex should be comfortably above 40,000. For the subsequent five years, the index is likely to gain around 3,000 points annually, putting it at approximately 55,000. A conservative estimate, however, would suggest achieving a certain 55,000, as large-cap shares move slowly due to their substantial base.
One significant factor that could contribute to the Sensex's performance is the potential inclusion of large firms like LIC, IRCTC, HDFC AMC, ICICI PRU, or SBI Cards in the Sensex index. These entities have the potential to provide a stabilizing floor.
Black Swan Events and Economic Factors
My analysis also considers unexpected events, such as black swan events. I predict that a significant event will occur during the second half of 2021, and a border skirmish with Pakistan is another potential black swan event to watch out for. These uncertainties can lead to volatile market movements.
In my view, the economy's future does not always align with stock market performance. Massive fund flows can distort market valuations, leading to unexpected gains. For example, the non-stop rise of the Sensex to around 50,500 has been driven by foreign institutional investors (FIIs) and the relentless pursuit of assets.
Given the current valuations and the impact of endless stimulus, I now believe the Sensex could even reach 75,000. However, my earlier estimate was conservative and followed norms that have been consistent over the past 15 years.
It is essential to remain realistic and unbiased when predicting the future. Economy logic and stock market performance sometimes move in different directions.
Last edited on 06-02-2021.