SENSEX @ 100,000 - Economy and Jobs

I came across a WhatsApp video forward of some news clip where the reporter was in awe of the predictions some random analyst was making - the SENSEX, pulse of the Indian stock market, will cross 100,000 in the next few years. Today its stands solidly at 33,000 inching towards 34,000. It seems improbable in the face of it. I was intrigued and did some research of my own.

The first known reference to SENSEX touching 100,000 was predicted by Mark Galasiewski of Elliott Wave International in April 2009 in an interview with CNBC. You can watch the video here. Mark is a technical analyst and he watches chart patterns to make the forecast. Subsequently, several other analysts have tried to repeat what he albeit sans Mark's confidence.

Now, one can use historic numbers to arrive at the forecast. I ran the numbers and if we consider 1979 as the base = 100 for SENSEX, it has delivered a CAGR of ~16.5% till 2017. This factors 38 years of global booms and busts, local swindles and sentiments. If we extrapolate that to 2024, 7 years from now, we will hit the 100,000 mark. Easy!

Caveat Emptor! Invest at your own risk.

I am not suggesting that there won't be any challenges. There are a whole bunch of variables that can pull us down but it will not be way off the mark. There is a positive correlation between GDP, Inflation and Stock prices. Add to this structural & sectoral reforms, stable government, positive geopolitical relationships and a heavy dose of positive sentiment the mark is achievable. Reforms create their own challenges and setbacks but we are talking long term here, so it will average out. All in all, it seems like a good zone to be in.

SENSEX is a secondary indicator of the Indian economy. There are varying estimates of the size of the Indian economy, but let us take the 2016 figure of $2.3 Trillion. If we assume a conservative real GDP growth rate of say 7.5% continues India should be a $3.8 Trillion economy in the next 7 years. A $1.5 Trillion net addition. The current per capita income will move up to $2650 from $1700, a CAGR of 6.5%. This factors our population increasing by 150 Mn to 1.45 Bn in the corresponding period.

The underlying infrastructure and reforms are headed in the right direction. We are also witnessing a computing revolution. Just as if the common person leapfrogged from 'no phone' to 'mobile' in 1990's, we will witness a jump from 'no-computer' to 'wired smartphones' by 2020. The smartphone packed with more data and utilities than some desktops IT revolution to the masses. Reforms like GST, Jandhan and Aadhar will improve functioning of the industries, movement of capital and money.

Creating corresponding jobs to drive that kind of GDP growth is THE challenge!

Three main factors drive economic growth and create jobs - Capital, Labor and Technology. All factors remaining constant, technology is the most impactful lever in this day and age. India needs a huge spur in invention, innovation and entrepreneurship. Sole reliance on government and large business houses to drive employment will not do the trick. This government has launched several initiatives but the momentum is yet to build. We need a 'revolution-type' approach in the areas of Digital India, Start-up India and Make in India.

On the entrepreneurship front, we need focus on two groups - women and youth.

While many women are taking the plunge and launching businesses, we have not even scratched the surface. Most women have social, cultural and family limitations to overcome. This under-tapped workforce can be productive through micro-entrepreneurship. Imagine millions of small women-owned businesses with 2-5 employees aimed towards the local community needs - food, education, fashion, investments, design or digital. Marvelous!

Encouraging youth to transition from campus to entrepreneurship will push capital deployment, employment and innovation. The entire eco-system must be set up to help these startups be successful - skills, funding, insurance, risk management, infra sharing, legal, media, ease of setup and incentives to name a few. Venture capital firms are leading the eco-system and they are doing a great job. Most startups and the eco-system in India are technology focused. We need more such eco-systems for manufacturing, finance, agriculture, food or allied services around banking and insurance.

I wish for million entrepreneurs in India in 2018. Happy New Year to all of your loved ones and you.