The BSE benchmark Sensex can possibly
touch 1,00,000-mark in the next six years if the infrastructure cycle is
revived quickly by the new government and the corporate earnings grow
by 20-25 per cent, claimed a report by Karvy Stock Broking. The
30-share Sensex is hovering around 25,000 mark at present. The stock
markets have witnessed strong rallies, mainly fuelled by expectations
from the Narendra Modi-led BJP government. According to the report, if
the infrastructure cycle revives quickly, the earnings growth revival
will be faster with even 25 per cent compounded annual growth rate
(CAGR) 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. An earnings growth between 20-25 per cent and multiple rerating
from 15x to 16-17x in the next few years can lead to a 25 per cent
compounding of Sensex returns, which will take it to 100,000 levels by
calendar year 2020!," it said. The key index breached the crucial
25,000-mark for the first time ever on May 16 when election results gave
a clear mandate to BJP. The bellwether index yesterday closed at
all-time high of 24,858.59 points. FIIs have reaffirmed their
commitment towards Indian equities with more than USD 20 billion
invested in 2013. "We see 2014 bringing a new bull cycle into
existence. A strong export sector, revival in investment activity,
continued recovery in US and a stable euro area are significant
positives for equity markets. With domestic macro-economic data also on
the mend, we are aggressive buyers of Indian equity," it said. For the
current fiscal, it expects a Sensex earning per share (EPS) growth of
around 15 per cent. "Despite so many negatives plaguing the economy,
corrective measures by the new government can quickly revive growth.
From an equity market stand-point, macro-economic revival in India will
open opportunities to make strong returns in the next few years," it
said. The report projects a GDP growth of 6 per cent in 2014-15 and
economy is expected to see a revival of growth and earnings cycle.
Citing past instances, the report said, the Dow experienced its most
spectacular rise in history in 1980s. From a meager 777 on August 12,
1982, the index grows more than 1,500 per cent to close at 11,722.98 by
January 14, 2000. There is no reason that India can’t see a prolonged
economic growth cycle with low inflation, it said, adding, the prolonged
economic growth can create similar equity market returns in India as
seen in United States in 1980s.
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