The Sensex, India’s primary stock market index, has delivered remarkable returns of 850 times to investors over the past 45 years, compounding wealth at an impressive CAGR of around 16%. To put it in perspective, an investment of Rs 1 lakh made at the inception of the Sensex in April 1979 would now be worth an astounding Rs 8.5 crore.
Having recently surpassed the 85,000 mark, the Sensex is now edging closer to the highly anticipated 1 lakh milestone.According to an ET report, some of the most optimistic bulls on Dalal Street expect this feat to be achieved as early as FY25.
However, if the Sensex maintains its historical average CAGR of 16%, the 1 lakh mark is more likely to be reached around December 2025. To hit this magical level, the Sensex needs to rise another 17.5%.
While retail flows have been significant, they may not be sufficient to propel the Sensex to 1 lakh. The next leg of the rally in blue chips is expected to be driven by banks and foreign investors.
Vaibhav Porwal, co-founder of Dezerv, states, “The current market levels are a reflection of market fundamentals and liquidity flows. Fundamentally, the market should deliver 12-15% returns per annum and therefore we expect 18-24 months for markets to get to these levels. However, there is a strong buying momentum in the market that is fueled by strong liquidity. In such a scenario, markets can overextend. Which means that we may see the 1 lakh number shortly.”
Seshadri Sen of Emkay Global believes that foreign investors, who have largely missed the bus so far, are now willing to overlook elevated valuations and increase their exposure to India. FIIs have invested approximately Rs 92,000 crore in the current calendar year, compared to Rs 1.7 lakh crore (1.2% of Nifty market cap) in CY23, suggesting room for further acceleration.
However, there is also a risk of a decline in FII inflow and a shift of funds to other emerging markets due to their relatively cheaper valuations.
Despite this, Dipan Mehta, Director of Elixir Equities, remains optimistic, stating, “I cannot make out a case for even a 5% or 10% type of correction because whenever there is bad news, there is so much money waiting on the sidelines to buy that it quickly absorbs any correction. Despite the flow of IPOs and QIPs and management selling, the money flow is just too strong.”
Last month, mutual funds were found to be holding a cash pile of Rs 1.86 lakh crore. Mehta further adds, “Portfolio managers also have got a lot of cash to invest and then there are retail investors, small ones from all over the country, wanting to invest in equities. So it is like a waterfall of investors and a huge gush of liquidity coming in.”