Investing Rule of 72: Will Sensex reach the 100,000 level in 5-7 years?

Hi, BSE Sensex is currently around 62,000 levels. Even in October 2021, if I remember correctly, the Sensex had touched 62,000 levels. My financial planner says Sensex will cross 100,000 in 5-7 years. Is that possible? I find it a bit far-fetched. I want to understand this since I have invested money in equities, and I didn’t see much gain in the past one-and-a-half years.

Mohit Sharma 

Reply by: Rajiv Bajaj, Chairman & MD, BajajCapital 

Predicting the equity market is not only difficult but futile. However, as a general rule, equity markets deliver superior returns over a long period, and the growth rate is roughly around two times the growth of gross domestic product (GDP).

You must note that long term in investments in equity markets usually refers to a minimum of 7 years. If you have a time horizon of 10 years or more, then not investing in equity becomes a bigger risk than not investing at all. You must never take a bet to invest for the short term in equity to make gains.

Remember that instead of investing directly in the stock market, we recommend building a portfolio through monthly systematic investment plans (SIPs) in carefully selected equity mutual fund schemes.

We wish to draw your attention to the famous “Rule of 72”. As per this Rule, investment value will double in the number of years we get by dividing 72 by the expected annual return rate. As per local and global economic experts, the Indian economy is expected to grow by 5–6% per annum in the next couple of decades. Accordingly, it may be estimated that the Indian stock market or Sensex may grow at 10–12% per annum.

If the Sensex grows at 12% per annum, it will double in 6 years as per the Rule of 72 (72/12=6). Even if the Sensex grows at 10% per annum, it will double in 7.2 years as per the Rule of 72 (72/10=7.2). Accordingly, Sensex may cross 120,000 levels in six to seven years from today and may cross 100,000 levels even one or two years earlier.

While one can follow the Rule of 72, one must also understand that equity investments are market-linked, even if you invest in mutual funds. Hence, one cannot predict the outcome of the market seven to ten years ahead today.

(Views expressed by the expert are his/her own)