Strong foreign liquidity flows fueled by ultra-lax policies at global central banks catapulted the BSE Sensex past 50,000 on Thursday. A revival of earnings growth and structural reforms may push the index to the 100,000 mark in the next five years, or even sooner, market experts said.
“Basically, if you look at it, the last 20 year earnings growth for Sensex has been 10.5% and the returns over the same period have been 13% on a compound annual growth rate (CAGR) basis. . Assuming it continues the same and on a higher basis, we should be able to hit 100,000 in the next 5-7 years, “said Amit Shah, Head of Indian Equity Research, BNP Paribas India.
According to Shah, growth will be led by IT services, finance, telecommunications, pharmaceuticals and consumer staples. “These sectors have the potential to be the businesses of tomorrow or they have businesses that can continue to reach the Indian masses and therefore ensure a sustainable growth trajectory,” he said.
Others agree. Amar Ambani, senior president and head of institutional research at Yes Securities, believes that Sensex may cross the 100,000 mark by 2025. “We have entered a supercycle for Indian stocks, as we had seen in 2003. We see a high possibility. of decisive reforms by the government, accelerated earnings growth and a continued liquidity flow that pursues growth, in a period of weakening the dollar, ”he said.
The Sensex, which first hit 1,000 in 1990, took nearly three decades to hit the 50,000 mark, crossing milestones like the dot-com boom and bust, followed by a global growth rebound that ended the financial crisis. global, and then strong liquidity-driven liquidity. rally, taper tantrum, European debt crisis and the covid-19 pandemic.
Indian corporate earnings have waned in the past decade. “The hope for a recovery in earnings, as always, remains intact as India emerges from the crisis. The last decade also saw near-historic low interest rates, both in India and globally, which would have a decisive impact on consumption and growth prospects, “said analysts at Motilal Oswal.
Foreign institutional investors led investments in Indian markets in 2010-20. During the decade, FII investments in Indian stocks stood at $ 107.38 billion, with only four years of exits. National Institutional Investors (DIIs) have invested $ 23.94 billion in Indian stocks, with mutual funds being the largest contributor, which declined in 2020.
Binod Modi, Head of Strategy at Reliance Securities, said: “The outlook for domestic stocks remains bright. Low awareness of equities, the dominant share of traditional asset classes in household investments and the absence of strong technology were the main obstacles in India. Despite this, Sensex posted CAGR growth of around 14% over the past 30 years, which is commendable. “
According to Modi, ongoing financial inclusion, lousy returns from traditional asset classes, improving household equity / bond ownership, and increased awareness among millennials are likely to help stocks long-term.
“Equities are likely to remain the best investment avenue from a long-term perspective, and the benchmark is set to maintain a long-term growth rate of 13-14% in subsequent years,” he said.
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