The Sensex has launched itself for a bull phase extending over the next five-to-10 years and could do a Mangalyaan in ‘pushing the beyond’ to cross the 1,00,000-target.
This could happen as early as 2020, according to Rajendran V, Managing Director of the city-based stock brokers Capstocks and Securities.
DECENT GROWTH
Explaining his logic, he said Sensex companies have managed to post decent earnings growth in 2013-14 despite muted GDP growth of 4.7 per cent.
During this financial year, the Sensex EPS (combined earnings of 30 companies in the Sensex) was 1,340, a growth of 12 per cent over that of the previous year.
“With a pro-reform and stable Government at the Centre and early signs of the economy bottoming out, it is logical to assume 15 per cent earnings growth in Sensex stocks during 2014-15.”
This would fire up Sensex earnings to 1,540 this year. Historically, Indian markets have traded between a P/E of 13 and 28.
“Currently, the Sensex is trading at a P/E of around 19. An estimated earnings growth of 15 per cent and the current P/E of 19 will itself take the Sensex to 30,000 by March 2015,” Rajendran says.
BEING RE-RATED
Concurrently Indian markets are also undergoing a re-rating in valuations since foreign investors are ready to buy Indian stocks at higher valuations on expectations of higher economic growth.
“Once the results of reforms being implemented become known in the coming quarters, investors will definitely be ready to give higher P/E valuations.
“Even at a conservative P/E of 21, the Sensex can touch 32,300 by March 2015,” Rajendran says.
The pace of Sensex earnings growth would accelerate further next year and an estimated 20 per cent growth for 2015-16 will take the index earning to 1,850.
This would translate to a Sensex target of around 40,000 by March 2016.
“If we extrapolate Sensex earnings further with higher growth rates of 25 per cent and a P/E of 21, the Sensex will touch 50,000 by March 2017 and 1,00,000 by March 2020.”