Understanding the BSE SENSEX and Its Potential Growth Trajectory in 2022
The global equity market has experienced exceptional growth, with most markets trading at all-time highs, excluding Japan. India's markets have led the way, with the SENSEX potentially reaching 100,000 in the near future. Despite these optimistic predictions, it is important to approach such forecasts with caution. This article delves into the current state of the BSE SENSEX, its recent trends, and the potential for future growth.
Current State of the BSE SENSEX
The current closing market price (CMP) of the BSE SENSEX is 62,625.63. Based on historical price volatility over 8 years, the index is considered high-risk but with a fair reward. It is currently recommended to avoid adding to positions and wait for a lower price level, around 48,148, before considering any additional investments. In the case of weak price movements, the target might be 56,686. The overall advice is to wait and watch.
Forecasts and Predictions
There is no certainty regarding whether the BSE SENSEX can cross the 75,000 mark by the end of 2022, especially considering the current global economic situation. However, if we consider India's growing GDP, it is plausible that such a target might be achieved.
According to recent reports, it is unlikely that the SENSEX will reach 70,000 by the end of 2022. However, it is highly probable that the index will cross this threshold in 2023. This prediction is based on the data showing that the SENSEX has corrected by over 18% from its peak in October 2021 to June 2022.
Recent Trends and Market Performance
From its peak in October 2021, the SENSEX corrected over 18% by June 2022. However, since July, there has been a significant rebound, bringing the index closer to the 60,000 level. This rebound is noteworthy, especially when compared to past corrections. Typically, when the index corrects, the combined Price-to-Earnings (P/E) ratio of all the stocks in the index experiences a similar correction. For instance, in January and March 2020, the index fell by 38%, and its P/E dropped by 40%. However, recently, the P/E of Sensex companies corrected far more than the index itself, by nearly 30%, making this correction unique in two decades.
Forecasting Future Performance
While the recent performance of the markets is promising, it is challenging to predict whether there will be a rally in the offing. The Q1 earnings of India Inc. have shown mixed results, and business conditions remain tight due to rising interest rates. These factors make a runaway EPS growth unlikely.
Furthermore, external factors such as rate hikes by the US Federal Reserve, geopolitical tensions, and other global economic challenges could impact market performance. Consequently, it is likely that equity markets will remain volatile, without a clear direction. As an equity investor, this means that the ride might be bumpy.
Investment Strategies for Current Market Conditions
Given the current trends and the varying risks, it is wise to adopt a balanced approach in investment strategies. Ignoring fixed income and being fully invested in equities, especially when debt products are offering attractive rates, is not advisable.
On ET Money, you can consider a Bajaj Finance fixed deposit that offers up to 7.5% interest. Diversifying investments across different asset classes can reduce risk and optimize returns. Asset allocation and rebalancing are critical for protecting investments from significant losses.
The ET Money Genius tool can help in this regard. Even in the most aggressive investment strategies, the equity allocation has dropped by around 15-20% since the start of May, helping to protect the downside. This approach ensures a more balanced and risk-managed investment strategy.
Conclusion
Markets are not solely about equities. Debt and gold are also vital components. Each asset class performs differently at various times, and strategies based on asset allocation and periodic rebalancing are essential for safeguarding your financial portfolio.
Understanding the dynamics of the BSE SENSEX and adopting a balanced investment approach can help maximize returns while minimizing risk. As always, it is crucial to conduct your own research before making any investment decisions.
Share Your Thoughts
Did you find this article helpful? Please UPVOTE and SHARE to help us reach more readers. To learn more about personal finance, follow us on ET Money.