Limit

Laughing and Frowning at the moment, I recall how a few financial whizkids and investment professors who wrote big books and made forecasts with exponential progressions and gave figures for some of the scrips in 1992 - I still remember their targets of ACC at 42,000 and Century Enka at 62,000! What happened after that everyone knows. What made them make these projections? The new liberalisation era, entry of FIIs and the wonderful big bull Harshad Mehta's stock-raising (or hair raising) wizardry.

Roll forward 2014 - about 20 years later. What is similar? The euphoria related to new government's promises of more liberalisation, Loads of FII money and another big bull Jhujhunwala's similar heroics! And no prizes for guessing what is in store for the coming years. As we all know, too much euphoria leads to disasters!

Instead of predicting a figure, I will just cite a few factors that will decide why Indian markets wont reach even half of what is predicted by the super bull:

1. currently, we are already discounting at least 2 years future earnings at a P/E of around 15; many companies are quoting at much greater P/Es expecting sustained growth levels. So even a small fall in earnings can take the markets lower.

2. Everyone gets tired of doing the same thing for long period. So the FEDs of the world will finally stop their printing hobby (if they dont, there will be a different disaster anyway). They have already stopped bond buying now and then when they ultimately raise interest rates in their part of the world, the free money has to disappear. May be slowly but still it has to! So you can guess the effect! Are we trying to assume FIIs are here forever?

3. Along with FII money, a lot of black money hoarded abroad has come into the investment arena which offers tax free income (in the form of LTCG). With greater awareness, perhaps, yes perhaps, this too will go down (unless the govt allows more of it to move outside and then come back into tax free investment avenues!).

4. Global economies are still not recovering despite (or due to) this huge printing press business. So when they start to decline, the market fall will be rapid.

5. Global oil and commodity prices have gone down to 5 year lows. But how long? the OPEC will start to cut production when it becomes unviable for them to produce oil (& gas) and sustain their economies at lower prices. This will increase oil prices, increasing our import bill and CAD will worsen when our exports get affected with weaker global economies. Similarly, weaker economies will attract people back to Gold and Silver.

6. Needless to state, growing 15 TIMES in 15 years can happen in stories and movies, not in reality. That means, on a simple rate, it is 100% every year, or if we consider CAGR, its like growing at an average rate of 33% every year! To match such a growth, our economy must grow at least around 15-20% every year!

7. And finally, the world is full of shady deals and dicey companies, every 4-5 years we get stories of corporate mismanagements and frauds - so you will find many more Enrons, Lehmans, Satyams and god forbid, natural disasters too that can pull us back.

So for those who have seen it all, this is just a methodology used by the investing community to fill confidence so that their existing investments make them super rich. I will be happy if this happens because I too am an investor in the markets. But then there are things too good to be true! I would be happy if the market achieves a 10-15% growth every year, which too is against statistical evidence from the past.

Therefore, one will need tonnes of salt (and perhaps some vinegar and chillies too) to take these predictions, a pinch will not be enough!