CAN YOU BEAT THE SENSEX?

 CAN YOU BEAT THE SENSEX?

What is the Sensex? 

    SENSEX stands for Stock Exchange Sensitive Index. It is also known as BSE (Bombay stock exchange): The oldest stock exchange in India. It is a free- floating index that comprises the top 30 Indian companies compared to other listed companies financially. This is determined by the market capitalisation of that company.

Returns earned from the Sensex

    When it comes to beating the Sensex, the first question is bound to be: what is the CAGR (Compounded annual growth rate) of Sensex? Well, on an average the Sensex has a CAGR of 15%, meaning that if you invest $100 at a certain date, your investment is likely to have the value of $115 at the end of the first year and the value of $132.25 at the end of the next one.

Is it possible to beat the Sensex?

    Many people might find it absurd for an investor to think that it is possible to earn better returns from the top 30 giants of the country because of the common myth that only large companies can provide high returns. However the fact is that mid- cap and small- cap companies have a higher scope for growth over the long period as the prices and growth of large companies are already saturated after so many years. Therefore, it is definitely possible to beat the Sensex! Are you ready to understand how to do so?

How to beat the Sensex?

    In simple words, to beat the returns from the top 30 market capitalization wise companies you need to find businesses that have the scope to turn into such giants eventually. For example, the Asian Paints stock that is currently trading at ₹3134 was also at ₹11.88 some day during the initial introduction of the company to the stock market, and the investors that bought that stock during or around that stage with a small amount as ₹1000, they would have around 6.63 Lakh rupees right now! This is exactly what you need to do by finding small and mid cap stocks that have such potential that will lead to extravagantly high returns eventually, all you need to do is find and invest with the aim of being a long term investor by being with the stock through thick and thin. By choosing a range of such stocks from different industries and countries, you need to construct a stock portfolio that in turn will help you to beat the index with returns as high as 22%!

How to find and choose stocks that can give such high returns?

    The first step to finding the ideal stock for an investment is to understand what all industries you need to invest in to have a fully diversified portfolio that will reduce risk and give you high returns simultaneously. Next up after knowing the industries you want to invest in that you have at least some basic knowledge about, you need to decide which company or companies out of it is the best suitable investment. Well, there are multiple factors to understand which company is best out of its competitors.

    One way to get an overview of this is to go to the screener app that will show you the rankings of the companies in those particular industries. However, the rank is decided over multiple factors and therefore it is recommended to look upon other ratios to reach your final decision of which stock to buy. Some of these ratios and figures to look upon include the P/E ratio, ROCE, market share and fundamentals like the company's strengths and weaknesses that you can find in their annual reports.

What’s next?

    Once you have bought the shares with the appropriate diversification, all that is left to do is keep your cool and wait… Not just for a day or two till the market heads downwards, but for the long term and wait for compounding to work its magic and if the stocks you chose are the right ones with high returns, then you beat India’s first stock exchange- the Sensex!

    To know more about the ratios and which stocks to choose for further comparing stocks with their competitors, check out our other blog posts.

~Shagun Johri