“You’ve got to be careful if you don’t know where you’re going, ‘cause you might not get there.” ~ Yogi Berra
“The Golden Era Begins. Sensex target – 40000 by March 2017.”
This is not my prediction but one from a leading private sector bank’s investment advisory group. I received this report in my email yesterday, and haven’t stopped giggling reading the headline and the report’s conclusions again and again.
The author of the report states (emphasis mine)…
No no, we are not being very bullish, but are trying to value Sensex on the average multiple of 17x (which was seen in the previous bull run, the highest multiple being 25x 1 yr forward).
As per the Bloomberg consensus estimates the FY17 EPS stands at Rs 2000, we think that the FY18 earnings could grow at 20% for the larger companies if the GDP growth moves towards the 8%-9% mark. Hence, the FY18E EPS is projected at Rs.2400. At 17x FY18E EPS, we get a target of 40800 by March 2017, which we think could be a reasonable target to look for by the investors.
We think that the earnings growth would largely be led by the strong developmental focus of the new government and the multiple rerating would be primarily led by the under ownership of equities by the retail investors.
Sensex Nonsense is Back!
If you read Chapter 3 of Ben Graham’s The Intelligent Investor (which is one book you must read now, in these times of euphoria), the heart of Graham’s argument is that the intelligent investor must never forecast the future exclusively by extrapolating the past.