Shankar Sharma: You are wrong!


“Sensible soundbytes” is an oxymoron. This is what a great author has said. So if most of you know what is a black swan, you know who I am talking about.

I normally do not watch much TV – except for Ramayan or Animal Planet with my daughter. However, I am many times under great pressure to watch the business channels – from friends in the media.

Yesterday, I believe, Mr. Shankar Sharma came on NDTV Profit and said “The index will not reach 100,000 – not in my life-time – and may not be in your life time too, and you are much younger than me.” Frankly, Mr. Sharma you look young, and maybe you are about 45 years of age. However, for our purposes may I please assume you are 50? May I also assume that you will live to the age of 72 years? i.e. we are talking about 22 years. May I also assume that India will grow and there will be inflation in India? i.e. we are talking of 6% growth + 6% inflation. That is we will get a growth of at least 12% p.a? I know about standard deviation, and I also know that we will not grow at this constant rate….however 12% over the next 22 years will happen.

On this assumption Mr. Shankar Sharma the index will grow as follows:

50 16,307
51 18,753
52 21,566
53 24,801
54 28,521
55 32,800
56 37,720
57 43,377
58 49,884
59 57,367
60 65,972
61 75,867
62 87,248
63 100,335
64 115,385
65 132,693
66 152,597
67 175,486
68 201,809
69 232,080
70 266,892
71 306,926
72 352,965
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18 Comments on “Shankar Sharma: You are wrong!”

  1. Devsfunda Says:

    sir what makes you think growth would be 6 % over next 22 years ?

  2. subra1221 Says:

    plug in a smaller number…you will still reach 100,000 by the time SS’s life is over. A typical middle class guy lives till 80 – if SS lives till 80…market should top 100,000 by a mile….so he is still far away. The most important thing to realise that 12% of 80,000 is 9600 – very close to the low that the market will hit before it reaches 21k?

  3. Debasism Says:

    Dow Jones Industrial Average 2nd January 1964 index =813.29
    Dow Jones Industrial Average 1st April 1982 index = 811.93
    The mighty USA was not in a deflation during that period . how do you explain that?

  4. subra1221 Says:

    exactly my point. Do not use excel just because it is convenient. Predicting is difficult. Especially if it is about the future. So said Mark Twain.

    Saying where the index will be after 30 years is pure foolishness. None of us can get it right. Not Shankar Sharma, Not Subramoney. Not Rakesh Jhunjhunwala. …so to say “Index will not reach 100,000 in my life time” or to say “Index will reach 100,000 during my life time” both are wrong. And that is because : 1. You do not know how long you will live. 2. You have no idea whether the BSE will be there (I am convinced it would have ceased to exist) 3. You have no idea whether equity will be the best basis for funding extremely large projects. 4. Millions of other things….

    So either ways One can argue. But remember the great BRIC theory is on the assumption of growth at a 2 digit rate, for more than 30 years….that is the most quoted study

  5. Prabhu Says:

    I see two assumptions are :
    1) The rate of GDP growth (12%)
    2) Sensex grows at the rate of economic growth.

    Is the second a valid assumption ?

  6. Sumit Says:

    Who is the foolish author of this article. Is this stock market index or a bank FD which will double ur money every five years. The author of this article should know that in stock markets, things don’t fall in straight line. The author has factored in an increase for each year, which is practically impossible (Have a look where the sensex was 1 year ago and where is it now).Absolutely rubbish stuff by the author.

  7. aditya Says:

    what bakwaas yaar , if only making money was that easy life wolud have been much easier

  8. Rajesh Says:

    Haha.. the author of this article seems to one of those “over optimistic” Indians who keep dreaming all day. Get real boy. What you just posted is utter rubbish.

  9. sushilavibrantlife Says:

    hi..
    the world is always in a long term bull run… so what u say makes sense

    sushila

  10. Karthik Says:

    I can’t but laugh…….. not because the stocks have crashed when i am writing this comment but because the assumption the author has taken….Firstky india will grow at 12%…… any person who has lived on this planet for a considerable length of time will know if india grows at that rate then all the billionaires will be from india which is not possibel and not even thinkable…….. secondly the stock market also togrow at the same rate….. he he he….. i can only think of this joke……… Rule 1:U r wrong…. Rule 2: rule 1 is always right……and by the way the author can only do the math….. nothing beyond that….

  11. Vishal Says:

    I agree with you…Taking the sensex value at 9k levels, the sensex has grown at 12% over the last 20 years (i.e. after a 60% fall from 21k)…and remember that this was just after the reforms started – so the benefits of liberalization just started…India will not grow at a constant rate of 12% a year, but the CAGR over the next 20-30 years will be in this vicinity (poor at maths guys like Sumit and Karthik should study the meaning of CAGR)…I think the right intrinsic value of sensex today is around 12k…so the markets are undervalued…Debasism should study the P/E or P/B of DJIA at both those levels…the starting period ratio should be high, in my opinion, and the endind period ratio very low…Pls. study the CAGR rate of DJIA over last 50 years and compare with US GDP nominal growth rate…u will know the reality

  12. Vishal Says:

    My assumptions will be

    Starting Value of Sensex : 12,000 (my estimate of fair value)
    CAGR Rate : 14%
    Period : 17 years
    Sensex Value : ~ 110k

    I think Shankar Sharma will live for 17 years more…unless he gets too bearish on his own life !!!

  13. Vishal Says:

    One caveat – sensex can reach this 100k mark 3 years before or later 17 years (i.e. range will be 14 – 20 years) – as markets tend to overshoot sometimes or undershoot sometimes…people can be very pesimistic (like today) or overtly optimistic (like in Dec 2007)

  14. subra1221 Says:

    Vishal

    actually few of us know we do not know, some others do not 🙂 . So can’t help them. Also when i put the value “i do not know what rate market will grow” it said “error’. So I had to put a number. If S and k think CAGR is a straight line, God can teach them maths.

    I agree with you that betting on sensex or betting on anybody’s life is equally foolish, but it was just to show SS that mathematically he is forgetting the importance of compounding – especially in the later years. So from 83k to 100k can happen in just one year!! Compounding – it takes Einstein to understand it, what say?

  15. deepa Says:

    Shankar Sharma may be right or wrong depends on how long he lives! Simply because the market can actually go to 99000 (when SS is 64) and then have a slide to 80000. And then take 10 years to go back to 99k!

    Predicting markets with 2 events which cannot be predicted (market and death) is a high risk effort (if done seriously) and the reward is just some sould satisfaction.

    I am sure p v subramanyam does not know SS personally!

  16. kuwar Says:

    I really like simple calculation you have made. I also want to suggest to view this calculation on my blog Money Drives Life

  17. Harry Says:

    if a country can grow @14% (or even 10%) per annum for the next 15 years, that country’s economy will be much bigger than the whole world.

    yeah, compounding is powerful, if you could stretch it for the next 20 years it may even touch 500k.

    if you guys can see Nikki’s move for the past 30 years , probably you may get some idea.

    Growth can’t be at straight line.
    We are not equipped to comment people like Shankar.


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