The Journey of Sensex: From 10,000 to 70,000
In the world of finance, few things capture our attention quite like the soaring numbers of market indices. One such index is the Sensex, which is the benchmark index of the Bombay Stock Exchange (BSE) in India. Over the years, the Sensex has witnessed remarkable milestones, including hitting the 10,000, 20,000, 30,000, and most recently, the historic 70,000 mark. In this infographic by ETIG Database, we delve into the journey of Sensex and explore the factors that have fueled its growth.
The infographic provides us with a visual representation of the milestones achieved by Sensex, starting from the 10,000 mark in 2006 to the incredible feat of reaching 70,000 in recent times.
Examining the time it took for Sensex to reach various milestones, we find that the number of days varied. For instance, the first 10,000 points were achieved over a period of 5,700 days. The journey from 50,000 to 60,000 witnessed the fastest move, with an increase of 15% achieved in just 158 days in 2021.
While valuation is not a primary focus for WeekendInvestors, let us quickly take a look at the price-to-earnings ratio (PE ratio) of Sensex. The infographic reveals that when Sensex touched 70,500, the PE ratio stood at 24.96. Comparatively, it reached as high as 34 times when Sensex was at 50,000 in February 2021. This insight suggests that if the market were to reach similar valuations in the future, there is potential for a 30% increase in the index.
Taking into account the past valuation trends, it becomes evident that there is still considerable headroom for the market to grow further. In the past, the price-earnings ratio bottomed out at 18 times when Sensex was at 10,000. However, over the last decade, it has remained above 16-17 times, thanks to money creation within the financial system.
Domestic and Foreign Flows
An interesting aspect to consider when examining the journey of Sensex is the impact of domestic and foreign flows. The infographic highlights that in the previous five instances of milestones, foreign flows remained positive. However, during the recent move from 60,000 to 70,000, foreign investors withdrew approximately 70,000 crores, while domestic flows brought in a staggering 5,23,000 crores. This represents a significant shift in flow dynamics, as domestic savings are now being channelled into the market like never before.
Changing Dynamics
The data indicates a paradigm shift in the liquidity dynamics of the market. Previously, the market relied heavily on foreign investors for liquidity. However, the recent milestones demonstrate that the market can reach new peaks even without significant foreign inflows. This independence from foreign liquidity highlights the increasing role of domestic investors and their growing confidence in the Indian stock market.
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