If the Sensex was a standalone stock trading at 13,024, valued at a PE 21.6 on its trailing 12-month earnings per share (EPS) of Rs 601, will you buy the stock? At any level, forget 13,000, no one can predict anything that is going to happen regularly and consistently. It’s also difficult to predict how much more to pay, valuation wise, for Sensex Ltd’s growth. But given that analysts reward consistently growing companies with higher valuations, is there room for an upside in the Sensex at 21.6?

Frontline tech companies are valued at more than 37 times current earnings because they can consistently deliver annual earnings growth of more than 35 per cent. An unpredictable earnings growth could see erratic and lower valuations. But at any point, some stocks appear to be more attractive than others, because of their superlative earnings growth prospects or because they have suddenly slipped to really low levels. Remember when Sensex crashed to 9,000 levels in June, some daredevil investors found value and have since reaped returns of 45 per cent.

For now, though, earnings growth has achieved even more significance because Sensex is a well-priced, well-performing stock where earnings growth is expected to be strong. The Indian economy is expected to record its fourth consecutive year of 8 per cent GDP growth rate, which is extraordinary and unprecedented. Earnings growth for Sensex is coming from more spending on consumer and luxury goods as well as on infrastructure spending, which is driving demand for cement, steel and houses.

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