BSE SENSEX at 40,000 by 2017
Indian equity markets have been on a roll since the
past few months in the hope of a pro-reform and business friendly government at
the Centre that could help turnaround the economy, and in turn, lift fortunes
of India Inc.
As the bulls tightened their grip on the markets, the
benchmark indices - the S & P BSE Sensex & the CNX Nifty - hit their
lifetime highs. While the Sensex breezed past the 25,000 mark, the 50-share
Nifty topped the 7,500 level.
As 'Modi-mania' took over, most analysts revised
upwards their targets for the benchmark indices with a few estimates pegging
the S&P BSE Sensex at 40,000 by 2017.
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| Mr. Varun Goel, Head - PMS, Karvy Stock Broking |
In a latest report, Mr. Varun Goel, Head - Portfolio
management services (PMS), Karvy Stock Broking suggests that the SENSEX can
touch 100000 mark by 2020.
"Despite so many negatives plaguing the economy,
corrective measures by the new central government can quickly revive growth.
The potential growth rate of economy is running about 6 %. The growth rebound
to those levels can take place quickly by reviving the investment demand. Once
that has been achieved, the more arduous path of reclaiming the 8 % growth can
start," Goel says.
Adding: "There have been many instances in the
past with 20% to 25% compounding for long periods in other global markets. The
Dow experienced its most spectacular rise in history in 1980s. From a meagre
777 on August 12, 1982, the index grows more than 1,500% to close at 11,722.98
by January 14, 2000."
Here are five reasons why he thinks the index can
touch the 100,000 mark:
(1) From an
equity market stand-point, macro-economic revival in India will open
opportunities to make strong returns in the next few years. The GDP (gross
domestic product) growth is pegged at 6 % in FY15 and Karvy believes that
economy will see a revival of growth and earnings cycle.
(2) The agricultural and services sector continue to
show strong traction and gradually even manufacturing sector should pick-up as
consumer demand revives. A real GDP growth of 6 % along with Inflation of about
7 % should lead to a nominal GDP growth of 13 %.
(3) Sensex earnings growth has improved from 5 % in
FY13 to nearly 10 % in FY14 on the back of rupee depreciation.
For FY15, Karvy pegs the Sensex EPS (earnings per
share) growth of about 15 %. They believe that earnings growth for new five to
six year business cycle should be at least 20 % considering the economy will
revive from a very low base.
(4): If the infrastructure cycle revives quickly, the
earnings growth revival will be faster with even 25 % CAGR (compounded annual
growth rate) looking possible. A multiple rerating is also possible as cost of
equity goes down in the next few years with the decrease in risk free rate.
(5) An earnings growth between 20 to 25% and multiple
rerating from 15x to 16 -17x in the next few years can lead to a 25 %
compounding of Sensex returns, which will take it to 100000 levels by calendar
year (CY) 2020.
Karvy Stock Broking -
Portfolio Management Services
Bangalore
51/2, II Floor, TKN Complex, Vanivilas Road,
Opp. National College, Basavanagudi,
Bangalore - 560 004.
Phone No. : 080-2660 6126
Chennai
Wellingdon Estate, 1st Floor,
24 Ethiraj Salai,
Egmore, Chennai - 600 108.
Phone No. : 044 - 4592 5923
Email: wealth@karvy.com
SMS "HNI" to 56767
Portfolio Management Services (PMS), service offered by the Portfolio Manager, is an investment portfolio in stocks, fixed income, debt, cash, structured products and other individual securities, managed by a professional money manager that can potentially be tailored to meet specific investment objectives. It is the effective way of growing your Wealth for more information - http://capstocks.com/Portfolio-Management_services
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