Frankly I do not have an answer…but let us see what can happen. Lots of people who have made money on the up ride from 9k to 20k whom I know are happy to sit on cash earning 10 to 10.5% p.a. interest. See the IDBI bank ad – it is screaming a rack rate of 10.25% – clearly smart money can get at least 10.75%. Last week saw a builder borrowing from a bank at 18% p.a. If you know how such deals are done – the deposit holder was being paid about 1.5% by the builder – increasing his yield to about 12% p.a. obviously without lien.
So if I can earn about 11% p.a. I may not seek equity assets for the near term.
However the investor who is confident of getting 12% on fixed deposits will look for at least 16-17% p.a. in equities. This may be possible over a longer time frame – which means it will not happen over a 3 year period, but can happen over say, a 6 year period – just a guess, but a fair one, I think.
Europe has its crises, Japan has its major problems, Middle east is on the boil – this leaves the US money with very little choice. India may benefit by the TINA effect. However with interest rates going up, banking, real estate, cyclicals, commodities could all be headed down. This makes the sensex reasonably robust – the interest portion in the sensex eps is quite marginal, nothing to get excited about.
At 12-15% growth in the sensex should take it to say 31000 in 6-7 years. Is this possible? the answer is an unequivoval YES. However can the market come to 15k before it starts its upward journey. Am I scaring you? No. NO.
Be ready and prepared for a slow grinding in the market – down wards of upwards…but be prepared for the long run. The immediate quarter does not look too great – I hope you are ready for a longer grind!
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