Tuesday 25 June 2019

Be a “Dumb” Investor

Everyone we meet wants to be a “Smart investor.”

 Who are these “Smart Investors?”
They are generally well read and well informed, professional, erudite and on top of their vocation or profession. They believe in studying the markets, investing when the timing is right and exiting when the market hits the peak. They prefer investing in direct equity, and believe that consulting a financial advisor, or investing in mutual funds through a distributor, investing in Debt  and other asset classes are for the less fortunate and “Dumb Investors.”

“Smart Investor” reads the pink papers, watches the business channels and follows the market makers on social media and make intelligent conversation in their circuit and are ready to reap the “benefits” of their superior knowledge.

“Smart Investors” generally want to perfectly time the market, Sell at the peak and buy at the absolute Nadir. If they find that prices have fallen considerably after they have bought a stock, they must buy more of the same stock and average their price without any consideration of the fundamentals of the stock. For many “smart investors”, their only consideration for buying a stock is the discount at which it is trading from its 52 week high or from its 200 DMA.

“Smart Investors” believe in exotic products as they believe that if the product offering is complicated and difficult, only they will be able to understand it and smartly make money from it as  against conventional market wisdom that exotic/difficult products only benefit the seller and no one else.

They also believe in Investing in themes as they have been given the wisdom and have a God Given gift of identifying the theme before it actually happens and can make money from it.

Iam reminded of the U.S. market, before the turn of the Millennium, when the “Smart investors” bet heavily on the internet and related theme that was going to “change everything.”

A famous E-TRADE ad in the U.S. in late 1990’s urged investors to “Boot Your Broker” and trade online. It Urged people with extra money to invest it in stocks on the Internet through the E*TRADE service. Using a football game as an analogy, it also explained the basics of smart investing and how to make money.

Thousands followed that advice, sometimes quitting their real jobs to day trade hot stocks like Yahoo and Internet incubator CMGI (which gained almost 5000% in five years) many times a day. Nobody expected the merry-go-round to stop, but of course it did, and even non-day-trading investors, who had bet heavily on technology and the Internet, lost their shirts. The S&P 500 tumbled 49% and the Nasdaq Composite Index lost an astonishing 72% of its value.

“Smart Investors” had bet on the hottest theme of the century, despite making initial gains, the result was exactly the same: Very few ended up making money. Some people who had lived through this grim experience swore off investing forever.

The same result has been repeated several times hence, in 2008, 2013 and many other times but the “Smart Investor” never learns, relying more on his knowledge, deep understanding and intuition rather than market history. A common quote of the “Smart” Investor whenever the market hits a new peak and he is buying is, “This time it is different.”

What are the chances that you will be able to predict market movement ?
We feel, you should not even try it.

Your best option would be to invest in a disciplined manner and on a regular basis. Tools like SIP are your best options in all types of market scenarios. And if, you still want to track market and invest at a lower point then make use of any dip that are available and the market offers from time to time.

How likely is it that you will be able to enter the market just at the bottom?
We would say the chances are negligible. Several “ Smart” investors have recently burnt their hands and made a deep hole in their pocket following the timing and averaging strategy in the case of Yes Bank, ADAG stocks, DHFL, Jet Airways, Hotel Leela, Educomp and many more.

If you are a long-term investor, as you should be, remember over a long-term period every correction is going to look like a wrinkle. If you are investing for a goal, which is 10 years away, whether it is for your child’s higher education or your retirement, and aiming for the Sensex at 100000 in 7 years, does it really matter whether you invest at 36000 or 45000 Sensex?

So, rather than trying to predict and time the market movement, participate at every turn, make use of every opportunity. Don’t wait for a correction to invest because, “more money is lost in waiting for the correction than in the correction itself.”

What is important is that you should meet and consult your financial advisor, decide your financial goals, quantify them in terms of amount and the time when you require the money. Finalise your Asset allocation strategy based on your risk profile and fund requirement and start your investment journey in time.

Please don’t even look at equity markets if your investment horizon is less than five to seven years. It will be too risky and the volatility will give you an unpleasant journey.

But the problem with most investors, is just say Equity market and somehow greed creeps in. You want to invest in a multibagger if not a ten bagger. All the stories you have heard in the cocktail circuit on how wealth was multiplied by just investing in some penny stocks, and you want to try your hand and risk your hard earned money to multiply it.

Mom and Pop retail investors and the so called knowledgeable professionals, who are out to be the “Smart Investors” are known on Wall Street as "dumb money", and are always the last ones to the party and suffer from the worst of returns. 

The very nature of the equity market is to remain volatile. Even though the long-term trajectory of the market is upwards, the journey is not linear, but with its share of ups and downs.

In recent times, the broader market has corrected sharply and is trading at near its mean level but no investor is interested in investing, rather they are waiting for further corrections. Let the market start its upward journey and start crossing milestones once again and our phones will not stop ringing with investors wanting to rush their investment and not miss the party.

Strange investment behaviour, just to share an analogy, Shoppers heading to their local mall to buy clothes would generally buy double if there is a SALE and fewer clothes if they found that prices had doubled. Investors are the opposite of shoppers. They tend to get excited by higher prices for financial assets. If prices of stocks double, it is likely that investors will want them more. And the more they go up, the more investors tend to want them in a phenomenon known as “fear of missing out,” or “FOMO” for short.

“Dumb” investors don’t make investing in the stock market their daily passion. They are more likely to show tons of patience and have a long term approach to investing. In general, they would not be concerned about market highs and lows. They would look to invest continually, regardless of stock price or market levels.

In essence, dumb investors are those who aren’t tracking the daily minutia of the stock market and consequently are not making the “best” choices with their money.

We always emphasize with investors to work with a plan, work to achieve your financial goals, ignore all noise, concentrate on your asset allocation, convert your investment to a formula driven strategy, but all this sounds rather tame and dull. It is annoying and boring in the most exciting of times. Our strategy appears as a “Dumb” thing to do with no action happening at most times.

But every study shows that “Dumb Investors” who follow a formula driven approach to their investing beat the “Smart Investors” over longer periods of time, provided they don’t act “smart” and can stay off the temptation to make a quick buck and time the market.

Markets have repeatedly proven that The “Dumb Investors” are actually the smart investors. So, be a Dumb Investor and enjoy your investment journey.

The purpose of investment is not to brag about your returns and multi baggers over rounds of your favourite Single Malt or on the Golf Course but to follow a strategy to achieve your financial goals. And if that can happen by being "Dumb", so be it.

Happy Investing!
Stay Blessed Forever

Sandeep Sahni
Note: All information provided in this blog is for educational purposes only and does not constitute any professional advice or service. Readers are requested to consult a financial advisor before investing as investments are subject to Market Risks.


About The author


Sandeep Sahni


Sandeep is an alum of IIM Lucknow with a Post Graduate Degree (MBA class of 1988). His also an alum of Shri Ram College of Commerce, Delhi University (B.Com. Hons. Class of 1985.)

Sandeep's investing experience and study of the Financial Markets spans over 30 years. He is based in Chandigarh and has been advising more than 500 clients across the globe on Financial Planning and Wealth Management.

He has promoted “Sahayak Gurukul” which is an attempt to share thoughts and knowledge on aspects related to Personal Finance and Wealth Management. Sahayak Gurukul provides financial insights into the markets, economy and Investments. Whether you are new to the personal finance domain or a professional looking to make your money work for you, the Sahayak Gurukul blogs and workshops are curated to demystify investing, simplify complex personal finance topics and help investors make better decisions about their money.

Alongside, Sandeep conducts regular Investor Awareness Programs and workshops for Training of Mutual Fund Distributors, and workshops and seminars on Financial Planning for Corporate groups, Teachers, Doctors and Other professionals.
 Through his interactions and workshops, Sandeep works towards breaking the myths and illusions about money and finance.He also writes a well read blog; 

He has also conducted presentations, workshops and guest lectures at Management institutes for students on Financial Planning and Wealth Creation.He can be reached at:+91-9888220088, 9814112988

        Follow us on:
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Saturday 22 June 2019

Are we facing a Recession - 2019?

Recession – The Dreaded R word.

Various Dictionaries Describe recession as a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.


Since the Industrial Revolution the long-term macroeconomic trend in most countries has been economic growth. However, with this long-term growth there have been short-term fluctuations when major macroeconomic indicators have shown slowdowns or even outright declining performance over time frames of six month or more before returning to their long-term growth trend. These short-term declines are known as recessions.

A Recession is widespread economic decline that lasts for at least six months. A Depression is a more severe decline that lasts for several years. There have been 33 recessions in the U.S. since 1854.


Well-known examples of recessions include the global recession in the wake of the 2008 financial crisis and the Great Depression of the 1930s.

A depression is a deep and long-lasting recession. While no specific criteria exist to declare a depression, unique features of the Great Depression included a GDP decline in excess of 10% and an unemployment rate that briefly touched 25%. Simply, a depression is a severe decline that lasts for many years.

The average length of a growing economy is 38.7 months or 3.2 years. The average recession lasts for 17.5 months or 1.5 years. A full business cycle on average is 4.7 years. 

The longest contraction or recession of record in the United States was the Great Depression in 1929 that lasted 43 months or 3.6 years. The recent recession, having begun in December 2007, lasted 18 months till May 2009. In the U.S., Until now the longest postwar recessions were those of 1973-75 and 1981-82, which each lasted 16 months each.

Factors that cause a recession generally include high interest rates, reduced consumer confidence, low investment and reduced real wages.

Effects of a recession include a slump in the stock market, an increase in unemployment, business failures and often bank failures and increases in the national debt.

The economic pain caused by recessions, though temporary, can have major, lasting effects that transform an economy. This can occur due to structural changes in the economy, as vulnerable or obsolete firms, industries, or technologies fail and are swept away; dramatic policy responses by government and monetary authorities, which can literally rewrite the rules of the game for business, in reaction to the recession; or social and political upheaval resulting from widespread unemployment and economic distress.

Numerous economic theories attempt to explain why and how the economy might fall off of its long-term growth trend and in to a period of temporary recession. These theories can be broadly categorized as based on real economic factors, financial factors, or psychological factors, with some theories that bridge the gaps between these.

Some economists believe that real changes and structural shifts in industries best explain when and how economic recessions occur. For Example, a sudden, sustained spike in oil prices due to a geopolitical crisis might simultaneously raise costs across many industries or a revolutionary new technology might rapidly make entire industries obsolete, in either case triggering a widespread recession.

Real Business Cycle Theory is the best modern example of these theories, explaining recessions as the natural reaction of rational market participants to one or more real, unanticipated negative shocks to the economy.

Some theories explain recessions as dependent on financial factors. These usually focus on either the overexpansion of credit and financial risk during the good economic times preceding the recession, or the contraction of money and credit at the onset of recessions, or both. 

Psychology-based theories of recession tend to look at the excessive exuberance of the preceding boom time or the deep pessimism of the recessionary environment as explaining why recessions can occur and even persist. Keynesian economics also points out that once a recession begins, for whatever reason, the gloomy “animal spirits” of investors can become a self-fulfilling prophecy of curtailed investment spending based on market pessimism, which then leads to decreased incomes that decrease consumption spending. 

There is no completely reliable way to predict how and when a recession will occur. Aside from two consecutive quarters of GDP decline, economists assess several metrics to determine whether a recession is imminent or already taking place.

Reducing PMI index, Weakness in wage growth, depressed farm prices, moderation in NBFC loan disbursement (particularly in the wholesale segment), the challenges in the SME segment, poor consumption demand (across auto, textiles and staples), low retail sales, Loan Delinquencies & Credit card default are all economic indicators pointing to a weakness in the economy.

The overall industrial activity has also moderated in the recent months. The construction related and investment related indicators are both showing signs of softness.


Without looking at data, the first signs on the street are clearly visible. Low auto sales and increase in inventory at the dealer level, the distress in the rural sector reflected in low rural growth in most product categories, Stalled construction projects, Same ARR and low occupancy in most hotels since the last few years, footfall drop in the Malls, Summer sales starting at the peak of summer instead at the onset of monsoon, low QSR and same store sales growth, empty toll plazas on the highway at peak holiday season are just some signs. Low occupancy at private professional colleges due to lack of suitable placements all point towards a lack of buoyancy in the Economy.

Talking to friends in the SME Industry, most honestly confess that they are not even contemplating any fresh investment leave alone thinking of expansion of existing units. Most of their time currently is absorbed by compliances rather than in promoting business and sales volume, they say. The other common refrain from the business community often heard is, “Bazaar main Paisa Nahin Hai” pointing to the liquidity problem.

Those having the resources are not wanting to invest and those wanting to invest are not getting access to funds with most financial institutions showing an aversion to fresh lending despite viable projects and excellent promoter credit history.

Failure has become a taboo and risk taking ability affected adversely after the business confidence and sentiment has hit a low due to recent economic scenario. A society, which does not encourage risk, does not encourage enterprise, which can only have an adverse impact.

The success ratio in Silicon Valley is less than 20% with a majority of Startups failing within the first two years. Since Formal businesses started, only 70-80% survive and much lesser are successful. The ratio has not changed over time but somehow Indian entrepreneurs are no longer interested in promoting new businesses due to the recent taboo of failure.

Consumption led growth has been the main driver of Indian Economy, but by all parameters of retail sales, FMCG sales, etc., consumer spending is starting to falter.
Consumer spending happens from personal income and saving or from credit led spending. Individuals spend when they have disposable income, or when they feel good (Positive Sentiment) and are optimistic and positive about the future earnings. The NBFC crisis has impacted the Credit led spending growth and poor sentiment has impacted the saving led consumption growth.

Though there may not be Blood on the Street yet, but slowing economy is a certainty as also reflected in the slowing GDP growth in the last few quarters. Whether you want to technically call it a Recession or just a temporary blip/ slowdown, the semantics don’t matter. 

Most economic recessions cause bear markets in equities. Since 1991 we have had seven bull markets and six bear markets of varying time periods and intensity. Technically a Bear market is when the equity markets correct by more than 20%. Historically  A bear market usually takes a year to bottom out and start recovery. In the last 10 years, the market fell more than 20% in 2008, 2011 and 2015 / early 2016 and recovered in 10-15 months.

The main stock market Indices, The Sensex & the NIFTY  need to correct; the broader market, the mid caps and small caps, are already in the Bear terrain.
Chart.. Small & Mid cap Index since last 18 months

Most stocks in the broader market have corrected considerably, some by more than 25%, and the small and mid caps have also undergone a time correction since the last 18 months.

We may be nearing a bottom. Though the index valuations are much above the mean, many individual stocks have started appearing attractive and are trading at close to mean and below mean valuations.

Take a relook at your portfolio, Book your profits in large caps, Start nibbling in select mid and small caps, increase your SIPs, begin your investment journey if you haven’t already, because let me assure you we are readying for a take off as the Indian GDP rushes to get past the $ 5 Trillion mark.

As with all recessions, this will also have a life as per historical average and the major part of this recession is already over before we even got time to acknowledge it in the midst of recently concluded Election frenzy.

Happy Investing!
Stay Blessed Forever

Sandeep Sahni









Note: All information provided in this blog is for educational purposes only and does not constitute any professional advice or service. Readers are requested to consult a financial advisor before investing as investments are subject to Market Risks.


About The author
Sandeep Sahni


Sandeep is an alum of IIM Lucknow with a Post Graduate Degree (MBA class of 1988). His also an alum of Shri Ram College of Commerce, Delhi University (B.Com. Hons. Class of 1985.)

Sandeep's investing experience and study of the Financial Markets spans over 30 years. He is based in Chandigarh and has been advising more than 500 clients across the globe on Financial Planning and Wealth Management.

He has promoted “Sahayak Gurukul” which is an attempt to share thoughts and knowledge on aspects related to Personal Finance and Wealth Management. Sahayak Gurukul provides financial insights into the markets, economy and Investments. Whether you are new to the personal finance domain or a professional looking to make your money work for you, the Sahayak Gurukul blogs and workshops are curated to demystify investing, simplify complex personal finance topics and help investors make better decisions about their money.

Alongside, Sandeep conducts regular Investor Awareness Programs and workshops for Training of Mutual Fund Distributors, and workshops and seminars on Financial Planning for Corporate groups, Teachers, Doctors and Other professionals.
 Through his interactions and workshops, Sandeep works towards breaking the myths and illusions about money and finance.He also writes a well read blog; 

He has also conducted presentations, workshops and guest lectures at Management institutes for students on Financial Planning and Wealth Creation.He can be reached at:+91-9888220088, 9814112988

        Follow us on:

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Sunday 16 June 2019

Money Lessons I learned from Dad


In my college days whenever I confessed to my Dad over the phone of my latest blunder, invariably there was a long silence. Was he angry? His silence was more menacing than a scolding or a lecture, even without him reprimanding, most of the times, his silence worked.
Perhaps most dads are like that — tough on the outside but emotional when nobody is watching. Besides providing emotional and financial security, Dads are also one of the best solutions providers that you will ever find; be it your career, finances or even your love life, depending on how close you are to your dad.

Fathers teach their children many basic things in life: how to read a book, throw a ball, tie a necktie, ride a bike, or drive a car. More importantly, they also help instill time-honoured values in their children, such as hard work, respect, honesty, and being a good citizen.
“Through their words, actions, and sacrifices, fathers play an important role in shaping the characters of their sons and daughters,” proclaimed former American President George Bush. 

One of the earliest money lessons and the thing I shall always remember is the haggling with my Dad over the increase in my pocket money during my College hostel days and in retrospect the financial lessons they were meant to teach. Living within our means, prioritizing the expenses, the importance of budgeting and making each Rupee count were just some of the lessons. The first priority, the all route DTC Bus pass, ensured you were mobile and payment of Mess Bill and Canteen dues ensured you will not be hungry and nothing else mattered much. A trip to hometown in a deluxe coach was often compromised in lieu of a date and Hot Choc Fudge at Nirula’s.  For the rest, Jugaad was often the way out and the most common was the somber face that we made and the tutored canteen boy who used to make an appearance at the apt time asking for dues, whenever a relative or an elder cousin came visiting and invariably the outcome used to be a Bonus and a well earned supplement.

No money lesson especially from Dad can be complete without reference to the all time classic written by Robert Kiyosaki, “Rich Dad Poor Dad” which has been one of the most influential books about money lessons since it was first published.

The author, Robert Kiyosaki narrates the money lessons he learnt over the years from two fathers, his biological father (Poor Dad)  and his friend’s father(Rich dad).
He outlined the stark difference between the two father’s ideology of money.
Poor dad (biological father), the educated one believed in “Love of money is the root of all evil” and made money mistakes and was stuck in “rat race”.
On the other hand, rich dad (friend’s father) taught him to move ahead with a bold mindset and believed in “Lack of money is the root of all evil”.

It is a simple story with examples to understand cash flows, building assets, and to learn from failures. Rich Dad Poor Dad is a thought-provoking book that makes you ask yourself a few important questions,
Do I have the passion to learn about money and what it can do,
‘Do I want to continue running the rat-race?’
‘Have I built assets or liabilities?
‘Are my expenses more than the income?’
‘Am I afraid to take risks?’

One of my favourite lessons from the book is,
If you say, “I can’t afford it”, then you prevent yourself from thinking about various possibilities to grow.

 Instead ask this question, “How can I afford it?”. This acts as a stimulus for your brain to churn up possibilities. And how to manouevre every negative ‘can’t do’ thought into a ‘can do’ healthy attitude.


I am grateful that Dad taught me about finances. My dad understood the importance of financial literacy and gave me a legacy of knowledge that I am now trying to pass on to my own children.
Financial literacy is having the knowledge necessary to manage personal finances efficiently. Financially literate people know how to achieve long-term goals and make healthy financial decisions.
On the other hand, those who are not financially literate have difficulty applying financial decision-making skills to real-life situations. Not only do they tend to make unhealthy money decisions that create financial problems, they have trouble reaching financial milestones. In our society today, financial illiteracy has assumed epidemic proportions.

The first thing that my Dad taught me was to fall in love with numbers as against an aversion to numbers that most people have.

My dad taught me not to define myself by how much I had, but by what I did with what I had. I learned early on not to let money be the sole determining factor for the decisions I made in life, but I also learned that, although money couldn't buy happiness, it could provide peace of mind, freedom and flexibility.

He always says, “remain focused on the end goal which can lead to financial freedom and work for it by minding your own business.”
He emphasized that we shall have to face many failures before finding true success. I remember the Snakes and ladder game he used to help illustrate, the many failures we may face and some very close to our goal, but still we shall have to dust off the disappointment and start all over again without any loss of enthusiasm.
Very often, He used the example of his own family who migrated from Pakistan at the time of partition, and had to start from scratch to rebuild their lives.

He taught me the importance of developing a skill set, “ work to learn.” He said look ahead and see, what skill sets you need to acquire before choosing a specific profession and keep constantly upgrading your skills because that is the only path to face the constant change and disruptions our society faces today. He said, train your mind to explore, to take on new tasks, to venture into unknown territories, as he believed that “a trained mind is a rich mind.” The more you train your mind to take bold steps, you will move ahead. The rich and successful create their own luck from obstacles and it is the same with money.

Life skills, communication, management of systems and people, etc. are equally important for financial success and are not taught in school.
He emphasized early on, “You should acquire these life skills to help yourself on the path to financial freedom. Effective communication and people management skills shall make the tasks of achieving your goals easy.”

He told us to try to figure out different legitimate ways to build wealth. Look for opportunities or invest in businesses to build more assets and generate a strong flow of income. Use the income earned to generate more returns or wealth so that it leads you to financial freedom. Effectively, he said, “don’t let your money remain idle but you should be making your money work for you and earn more money.”

Finally Dad taught me the love of sharing and giving, he taught me about “Tithing” in his own way. He shared the secret that tithing affects every aspect of our lives and not just our money. Tithing for him was not sharing a tenth of what he earned with a religious organisation or donating, but sharing what he earned and the fruits of his labor with his extended family and friends. Our house was always open to welcome guests and anybody could approach my dad for any assistance that he may require, in cash or in kind.

Dad's simple teachings can solve greater complexities but are often forgotten in our fast-changing lives. These childhood lessons from him may not have made much sense then, but they do now. It's worth following what he taught. So, let's go ahead and make the most of it.

I am thankful for the values my father instilled in me about "true wealth."
Thank You Dad!
Celebrate Fathers Day everyday, I try and do.

Happy Investing!
Stay Blessed Forever

 Sandeep Sahni




Note: All information provided in this blog is for educational purposes only and does not constitute any professional advice or service. Readers are requested to consult a financial advisor before investing as investments are subject to Market Risks.

About The author
Sandeep Sahni

Sandeep is an alum of IIM Lucknow with a Post Graduate Degree (MBA class of 1988). His also an alum of Shri Ram College of Commerce, Delhi University (B.Com. Hons. Class of 1985.)
Sandeep's investing experience and study of the Financial Markets spans over 30 years. He is based in Chandigarh and has been advising more than 500 clients across the globe on Financial Planning and Wealth Management.
He has promoted “Sahayak Gurukul” which is an attempt to share thoughts and knowledge on aspects related to Personal Finance and Wealth Management. Sahayak Gurukul provides financial insights into the markets, economy and Investments. Whether you are new to the personal finance domain or a professional looking to make your money work for you, the Sahayak Gurukul blogs and workshops are curated to demystify investing, simplify complex personal finance topics and help investors make better decisions about their money.
Alongside, Sandeep conducts regular Investor Awareness Programs and workshops for Training of Mutual Fund Distributors, and workshops and seminars on Financial Planning for Corporate groups, Teachers, Doctors and Other professionals. 
Through his interactions and workshops, Sandeep works towards breaking the myths and illusions about money and finance.
He also writes a well read blog; 
He has also conducted presentations, workshops and guest lectures at Management institutes for students on Financial Planning and Wealth Creation.
He can be reached at:
+91-9888220088, 9814112988
        Follow us on:

Posted by at 1 comment:

Wednesday 5 June 2019

Will the Sensex Double under NAMO 2.0 ?

Phir ek baar Modi Sarkar !

The Sensex welcomed the Election mandate and has hit 40,000 in a bout of euphoria – the highest it's ever been.
Politics and economics have a very symbiotic relationship and go hand in hand. Political stability plays a crucial role for a flourishing business environment. With the Modi government returning to power with a majority in the Lok Sabha, investors seem assured of a stable government and also expect the government to push through the much needed economic and structural reforms to give a boost to the economy.
The Modi victory should also bring back investors who had been waiting on the sidelines owing to the political uncertainty. Thus stock prices may show strength in the near term. But once the markets have adjusted to the new reality, the focus will shift back to the economic realities and earnings.
As the saying goes, in the short term, markets move because of Sentiment and liquidity but in the long term, earnings move the markets.
The question everyone is asking now is, “Will the Sensex Double under NAMO 2.0?”
Historically, the Sensex since 1986 to 2019 has done 6 doubles. It has been doubling on an average every five and a half years to reach a level of 40000 currently.

Since the Inception of Sensex, a study of the performance under the various governments shows the poor record of Sensex performance under the NDA rule. Both under Mr. Vajpayee and Mr. Modi, the Sensex has only given single digit returns as compared to high double-digit growth of more than 20% under the Congress and close to 18% growth under Mr. Manmohan Singh led UPA.



The current market valuations are also on the higher side as compared to 2014.

The Sensex grows due to increase in earnings or when the investors are willing to pay a higher multiple for the earnings due to high expectations of future growth and a jubilant sentiment.
At the current steep valuations, any growth in Sensex will essentially have to be an earnings led growth. The scope for valuation led growth of Sensex is limited as the valuations are already too stretched and trading at historic high levels.

Most Sectors are also trading at levels much higher than their 10-year average.
 

The Sensex needs to grow at close to 15% CAGR for the Sensex to double from current levels by the end of the term of Namo 2.0.
 

The Sensex has historically grown at around 16% CAGR since inception. The Sensex CAGR in the current century however has been lower at 11.56% and in the last decade, even lower at 9.19%
 Hence, what is the way forward for the Sensex?
 “Stock Returns are Slave of Earnings growth”- Warren Buffet

Historically, the Sensex EPS and the Sensex growth have a direct correlation as can be seen from the chart below.
 

At current Sensex EPS of around 1450(June 2019), Sensex is trading at 28 times trailing PE multiple. For Sensex to Double in 5 years, at current valuations, the EPS of Sensex companies has to reach around 3000, at a CAGR of 15.65%
However, if we get back to a long term average valuation of 19 PE multiple, then Sensex EPS has to reach close to 4200, a growth of almost 3 times current level and a CAGR earnings growth of 23.7 %.
Markets everywhere are the slaves of earnings. When you buy a stock, you essentially pay a multiple of the earnings.
The essential problem with the market has been the low earnings growth since the last 20 odd quarters. The earnings growth of the Sensex companies has averaged in single digits.
Earnings grow when there is sales growth or when the input costs come down including the interest costs, or with more efficient use of resources and increase in productivity. The most preferred way of earnings growth is growth in sales as that leads to multiple advantages and certainty in increase in earnings.
Growth in GDP has a direct correlation with growth in the Sensex companies. If the GDP doubles to $ 5.0 Trillion, Earnings and Sensex growth will follow at a similar rate if not at a higher rate.

 

 The IMF in 2018 has projected a healthy GDP growth rate for India in the next five years.

 

The Global commodity cycle is currently moderate and with world growth slowing, going forward, commodities should remain in this zone.  
Global interest rates are benign and the world capital is looking at avenues for an assured yield which India is well positioned to deliver. Hence if India can create the right environment to tap the Global capital, the badly needed investment in infrastructure of $ 1.4 Trillion over the next 5 years, as envisioned by Modi, will follow.
Read our earlier Blog on the Economic Agenda for the New Government. Read it to understand the steps the Govt needs to take to get  into high single digit growth.
OR
The government should continue its focus on fiscal consolidation and lower inflation. This will give the monetary policy committee more room to cut rate in response to slowdown in global macros, thus lowering interest rates for corporates and bring in private investment. We expect disposable income to increase in the coming years and it will also boost aspirational purchases and consumption growth.

  

As is evident from the above table, the magic $ 5 Trillion figure should be achieved in around 7 years.  China & The US markets delivered great returns when their markets travelled the similar journey.

 
Read our earlier blog on "Chronological Lottery" - The art of Being invested at the right place, at the right time, in the right asset class.                                       
Study of Stock market and Economic History shows that you can maximise your returns, if you invest during the most prosperous decades of the respective Economy. Where does India figure in this? Is India today on the cusp of a chronological lottery?
 OR
Sensex @ 80000 or Sensex @ 100000 in 2024, is dependent on earnings. It has delivered better returns in similar periods but has also delivered worse.
The Government understands what needs to be done, they have the political will to take strong decisions and unpleasant reforms, they have the vision and long term orientation and they understand that history will not present them with a better opportunity to deliver and raise the bar.
Forget the short term, the long term structural Indian bull market continues. Consult your investment advisor and get ready to join the equity journey and reap the benefits.

Happy Investing!
Stay Blessed Forever







Sandeep Sahni

Note: All information provided in this blog is for educational purposes only and does not constitute any professional advice or service. Readers are requested to consult a financial advisor before investing as investments are subject to Market Risks.


About The author
Sandeep Sahni

Sandeep is an alum of IIM Lucknow with a Post Graduate Degree (MBA class of 1988). His also an alum of Shri Ram College of Commerce, Delhi University (B.Com. Hons. Class of 1985.)
Sandeep's investing experience and study of the Financial Markets spans over 30 years. He is based in Chandigarh and has been advising more than 500 clients across the globe on Financial Planning and Wealth Management.
He has promoted “Sahayak Gurukul” which is an attempt to share thoughts and knowledge on aspects related to Personal Finance and Wealth Management. Sahayak Gurukul provides financial insights into the markets, economy and Investments. Whether you are new to the personal finance domain or a professional looking to make your money work for you, the Sahayak Gurukul blogs and workshops are curated to demystify investing, simplify complex personal finance topics and help investors make better decisions about their money.
Alongside, Sandeep conducts regular Investor Awareness Programs and workshops for Training of Mutual Fund Distributors, and workshops and seminars on Financial Planning for Corporate groups, Teachers, Doctors and Other professionals. 
Through his interactions and workshops, Sandeep works towards breaking the myths and illusions about money and finance.
He also writes a well read blog; 
He has also conducted presentations, workshops and guest lectures at Management institutes for students on Financial Planning and Wealth Creation.
He can be reached at:
+91-9888220088, 9814112988
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