Sensex@30000 – Value vs Valuation

Sensex@30000 – Value vs Valuation

The value of the sensex is at an all-time high level, but the valuations are trading near long term averages. Considering the trends in recovery of earnings, these valuations will get cheaper by the quarter

Value – The long-term rise in the value of the sensex is in line with the growth in profits of the underlying companies. What was 100 in 1979 is 30000 today after 38 years. This value will continue to rise with rise in profitability of Indian companies

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Valuations – For the same sensex level, if the profits rise 15% in a year, it means that while the value has remained constant, the valuations have become cheaper by 15%

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The sensex had previously touched 30000 on March 4th 2015, and by March 2018 valuations will be cheaper by 35% leaving a lot of room for the index to rise further

With improving fundamentals, earnings are expected to catch up in the coming quarters and so should the sensex value – steadily inching up towards our projected long term decadal band, to close 2020 in the region of 63500 (refer our blog http://simplymutual.com/volatile-markets-no-problem/)

 

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