Reaching an “All-Time High” is a characteristic phenomenon of a market within a growing economy. Investors often find themselves in a quandary when contemplating investments at such peaks.
However, analyzing data from 1991 to March 2024 reveals that over a span of 33 years and 3 months, the market achieved an “All-Time High” on 22 occasions, indicating a frequency of approximately once every 1.5 years. Notably, for the past 8 consecutive years, the market has reached an “All-Time High” annually.
Examining the growth and profitability dynamics, from 1991 to March 2024, the nominal GDP exhibited a Compound Annual Growth Rate (CAGR) of approximately 12%, while the Sensex recorded a CAGR of 14%. This growth in nominal GDP comprises the expansion of real GDP and inflation. As demand for goods and services escalates alongside rising prices, providers of these goods and services witness increased profitability, subsequently reflected in stock prices. Moreover, well-managed businesses often outpace overall economic growth, contributing to the growth of benchmark indices like the Sensex.
Illustratively, in 2000, when India ranked as the 13th largest economy, the Sensex peaked at 5,934 points. A decade later, with India ascending to the 10th largest economy, the Sensex surged to 21,005. By 2020, when India claimed the sixth position, the Sensex soared to an all-time high of 47,751. As of March 2024, the Sensex surged to 74,119.
India recently surpassed the UK to become the fifth largest economy and is projected to ascend to the third position by 2030, surpassing Germany and Japan. However, this journey towards becoming the third largest economy may diverge significantly from previous advancements. Throughout this trajectory until 2030, India is poised to witness notable growth in per capita income, driving consumption—the predominant component of nominal GDP—followed by investment, government spending, and net exports.
Crucially, as the economy progresses beyond fulfilling basic needs like food, clothing, and shelter towards embracing discretionary spending, characterized by aspirations for a higher quality of life, nominal GDP may experience unprecedented growth, subsequently reflected in the stock market.
It’s essential to note that in the short term, the stock market may not always align with nominal GDP growth. While nominal GDP tends to exhibit steady growth over extended periods, stock markets can occasionally experience significant surges or declines driven by sentiments such as greed and fear, supply-demand dynamics, and short-term economic factors. These fluctuations constitute market cycles.
Ultimately, over the medium to long term, profitability determines market growth. However, over the very long term, it is the collective aspirations and dreams of the Indian populace that influence economic growth and, consequently, market performance.
In this context, it’s imperative for individuals in their 50s, 60s, and 70s to observe and understand the aspirations of young Indians. As one of the youngest countries globally, India’s future economic growth and market trajectory will be shaped by the dreams and aspirations of its youth.
Whether they aspire to “eat well, look well, or live well,” it is the dreams of the young Indian population that will fundamentally drive the long-term growth of the economy and the market.
