Jefferies' Christopher Wood in his recent Greed and Fear report predicted that the S&P BSE Sensex can hit 1,00,000-mark by 2026. While the target is based on aggressive assumptions, it's eminently achievable, he said.
For this to be possible, Wood assumes a 15 percent earnings-per-share growth and that a five-year average multiple of 19.4 is maintained. Currently, the index is trading between 58,500-59,000.
Another market expert Raamdeo Agrawal, Chairman and Co-founder, Motilal Oswal Financial Services also noted that with 15 percent CAGR, this target is achievable. He stated that India has seen steady economic growth over the last few years and key indicators such as democracy, demography, digitisation, dollar reserves, and a stable government are already favourable towards India.
In an interview to Economictimes.com, he said,"On nominal GDP growth of 12-13 percent, corporate profit should grow around 15 percent. Since the stock market is a slave of earnings, it should track corporate profit growth - i.e., 15% returns."
As per Wood, India has always been a stock market for growth investors with the multiple to go with it. It further sees India setting the best earnings growth in Asia this year with only Indonesia and the Philippines higher in terms of consensus forecasts. The consensus earnings growth forecast for the MSCI India index this year is 20.3 percent compared to 11.3 percent for Asia, excluding Japan, it added.
"In a G7 world where value investors may finally enjoy an extended period of outperformance over growth, until at least the Fed performs another U-turn, India should be a prime object of focus for growth-oriented equity investors," the Greed and Fear report stated.
Despite the over 5 percent decline in Indian indices, since hitting record highs in October, Wood continues to remain bullish on Indian Equities. He noted that the decline was mostly triggered by the expectation of US Fed tapering and geopolitical tensions between Ukraine and Russia.
"The market would have suffered much more were it not for continuing healthy inflows into domestic mutual funds," he further explained. Net inflows in the Indian equity mutual funds between October and December came in $9.3 billion aiding the benchmarks.
Wood also seems to be highly encouraged by the revival of the housing cycle has after a seven-year downturn. "This should translate in due course into a broader capex cycle which should be earnings positive and mean the stock market will prove to be surprisingly resilient in the face of rising interest rates," he explained.
This can be seen in Jefferies' long-only Indian portfolio which has a 17 percent weightage in real estate stocks.
Headwinds
As per the report. two external headwinds are likely in the near future —the Fed tightening cycle and a rise in oil prices.
Explaining it further, Wood said that on the Fed tightening issue, it is important to remember that the inflation problem is primarily an American and G7 one, not an Asian one.
However, Wood added that a rise in oil prices can definitely hit India. "There is every reason for oil to head higher than $90 a barrel unless a new more lethal Covid variant emerges," he said. The report added that it hopes the Indian macro story will be more resilient to rising crude than has been in previous cycles as the rupee has been surprisingly stable recently.
Even though the risks might trigger a further correction in the Indian markets, Wood sees that as an opportunity.
"If the current housing upturn proves to be the lead indicator of a broader private sector capex cycle, as was the case in 2002-03, then India should once again become one of the best performing stock markets in Asia as it was between 2003 and 2007," Wood explained.