Invest in Sensex Stocks only and get a 11 bagger in 15 years !

Bombay Stock Exchange – the place where dreams are born and dreams are shattered, the place where a pauper can become King and a King can become a pauper .

Now, write this down in letters of gold : You can not only be King or Queen but you can have the world in your pocket if you understand the markets, understand human greed and fear, if you understand momentum and if you understand what we at HBJ Caps understand. And we understand and propound just one truth – that you may invest all the money in the world in Sensex stocks and guess what – it will take you years to get multibagger sort of returns from Sensex stocks

The other day I was browsing through how the Grand Indian Sensex has navigated through good and bad times over the years. I went one step ahead and zeroed in on the year when the sensex churned out the maximum returns considering 31 March as the base – and this is what I got:

Sensex on 31 March 1991 was 1167.97 & Sensex on 31 March 1992 was 4285. This translates into a fascinating 266.87 percentage Rate of Return over one year - that's great but then that's just notional profit because many folks invest in blue chip Sensex stocks with the objective of marrying them for a lifetime like a good husband - even thinking of divorce is considered to be an unforgivable, eternal and unpardonable sin.

Further, I randomly saw how the Sensex rested after 5 year gaps and here’s what I stumbled upon:

31.March 1992 Sensex 4285
31. March 1997 Sensex 3360.89
31 March 2002 Sensex 3489.35
31 March 2007 Sensex 13072.10

Now if you were to invest your funds in each of the Sensex stocks in proportion to each stocks representation in the Sensex, on 31 March 1991 you would have at best got a 11 bagger in 16 years and at worst a 3 bagger investment if you were to get in at 4285 and get out at 13072.10.!

And we the multibagger guys have every right to say that our stock recommendations are simply superb because they become 10-11 baggers in 3 to 4 years and not 16 long years when inflation and taxes and opportunity cost [ the money blocked for 16 years ] would amputee your overall returns.

.It should be noted that from 1992 till date the FII’s have pumped in over Rs.3.7 lakh crores into Indian Equities as a consequence of which we got to see the Sensex touch 20045.18 on 24 September 2010. Going forward, if the FII’s continue to pour money into the Indian stock markets then betting on how high the sensex will go will be great fun for those who make money betting on sensex direction.. And by the way, this is what Dr.Marc Faber author of the Gloom, Boom and Doom has to say about the Indian markets: “ I think in general people around the world are underweight Indian equities because it’s a huge country, billion people and many international portfolios have zero exposure to India.” So, don’t just attempt to guess the direction of the Sensex but keep investing in good growing companies backed by ethical management and take off some money off the table once in a while as the Sensex soars with fierce velocity dragging the good, bad and the ugly stocks to greater heights.

Mesmerized by how erratic the Sensex can move and defy logic, I started wondering whether the sensex can give us 266.87 per cent returns in 2 years if not in one year. Now, for that to happen, the Sensex needs to go as high as 35617.57 by 31 March 2011 leaving 9708.50 way too far away. Experts say History repeats and I say to you : Expect the Unexpecte because I will be last person on this earth to be stunned to see the Analyst shouting inside my TV box saying : Ladies and gentlemen, the Sensex has breached 35617.57 today and history has repeated itself!

So friends, invest well and stay well. Dream big and become rich. But know what you are buying and if you don’t know then don’t fret to ask those who know.

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd