Can Sensex touch 100,000 points and can you benefit from the rise?

Foreign portfolio investors (FPIs) are back in the market, hoisting Sensex above 80,000 in the index’s fastest 10,000-point rally. There is reason to believe FPIs are here to stay, and their pullout in May and June was a blip, not the trend. Uncertainty over election results is behind us, and the process of ministry formation provides investors assurance of policy continuity.The maiden budget later this month is expected to set a reform roadmap over the next five years, while persisting with fiscal prudence. The earnings season is likely to bear out that India is a market FPIs can’t afford to stay away from. Few other emerging markets can match India’s projected 7.2% gross domestic product (GDP) growth and, hence, earnings, although valuations are looking stretched.The return of FPIs is causing a rotation in favour of large caps. Domestic investors have been pushing the broader market, raising regulatory concerns over froth in mid and small caps. These concerns should subside as large caps catch up in valuations.The move from 70,000 to 80,000 has been restricted to just over half the Sensex constituents and should widen as earnings visibility improves across sectors on budget proposals and monsoon prospects.Easing of interest rates by central banks in advanced economies later this year will open the arbitrage opportunity Indian equity has to offer. Also, improving the trade balance eases pressure on the rupee, adding extra returns to FPIs’ India exposure. medium nocaptionhttps://youtu.be/9W5OwNeGOTc?si=BtyHUoJ_UREOlJeESo long as energy prices remain subdued, there is no major catalyst for FPIs to alter their India perspective. Unless other emerging markets can match up to the risk-reward metric, which India has worked on by encouraging debt flows. Sensex at 1 lakh may be closer than what investors had anticipated earlier.Having leapfrogged from 70,000 to 80,000 in less than seven months, Sensex can hit the milestone of 1 lakh as soon as December 2025, considering the 16% historical compound annual growth rate (CAGR) record of the headline equity index.Considering the base value of Sensex at 100 in April 1979, the Dalal Street barometer has jumped 800 times in 45 years by growing at a CAGR of 15.9%. If Sensex continues to grow at the same pace of 15.9% per annum, we will be staring at the 1 lakh landmark by December next year.This calculation doesn’t include dividends declared by Sensex constituents from time to time, which investors may choose to reinvest back in the market.The index, launched on January 1, 1986, with a base value of 100 as of April 3, 1979, has experienced only six instances of negative returns since 1996. It has doubled in value over the past five years when it was around the 40,000 mark.Dalal Street veteran Raamdeo Agrawal of Motilal Oswal fondly remembers that his journey into the world of stocks began in 1979, the same year Sensex was constituted. medium111520028Earlier calculations done by him show that if Sensex keeps on doubling every five years, it can hit 1.5 lakh in 2029.“India’s corporate sector profit has compounded at almost 17% over the past three decades. It is reasonable to expect 15% corporate profit growth going forward. If current P/E (price-to-earnings) levels of 25x are maintained, this too, translates to the Sensex compounding of 15%, i.e. double every five years. In other words, the sensex level of 150,000 around the year 2029,” he had written in an ET column in April.Veteran emerging markets investor Mark Mobius, known as an India bull in global circles, also agrees that if India is growing at 7% and companies are growing at 14-15%, the index will also rise at that pace over the next 10 years.“We are still on that upward trajectory. There will always be corrections, but we are still in that direction (towards 1 lakh). We will hit that. Maybe even before five years. India may be an exception in terms of moving faster,” Mobius had told ET Markets earlier in an interview.In the near term, the Sensex trajectory is likely to be decided by the noise around the Budget, the Fed’s rate cut trajectory, and the US presidential election. However, if one takes a longer-term view, the growth trajectory looks intact barring short-term fluctuations.With inputs from Economic Times.