The Indian benchmark stock index BSE Sensex is set to hit the long-awaited 100,000 mark by the end of 2026, expects Christopher Wood, global head of equity strategy at Jefferies. Wood said his target is for a 15 percent EPS growth trend and has a five-year outlook. While Chris Wood said his benchmark index target may seem like an “aggressive assumption,” he added that it “is now perfectly achievable on a five-year view, assuming trend growth of 15 percent EPS and a five-year average multiple of 19.4 is maintained”.
India should be the main focus of growth-oriented stocks, he said, adding that he will maintain the focus on domestic demand in his long-only India portfolio. Currently, the Sensex is at 58,669 points, meaning it could rise as much as 70 percent over the next five years, or in other words an 11 percent annual rate.
Any correction in global markets as a result of the US Federal Reserve’s monetary policy should be used as an opportunity to repurchase Indian equities, he said. “GREED and fear still hope that the Indian macro story will prove more resilient to rising oil prices than it has been in previous cycles,” Wood added.
While domestic markets have recently undergone a sharp correction, Wood remains confident. Foreign investors have sold $4.8 billion worth of shares so far. “But the market would have suffered a lot more had there not been sustained healthy inflows into domestic mutual funds. Net inflows into domestic equity funds were $9.3 billion in 4Q22 and $22.2 billion since March 2021,” he added.
Indian stock markets could prove surprisingly resilient in the face of rising interest rates, Chris Wood said. He draws this conclusion from seeing the housing cycle pick up again after a seven-year recession. “This should translate into a broader investment cycle in due course that should be earnings positive and mean that the stock market will prove surprisingly resilient in the face of rising interest rates,” he said. Stamp duties at the national level are up 59 percent in April-November from a year earlier – a strong indicator of improvement in the broader housing/real estate cycle.
About corporate profits
In terms of earnings, Jefferies’ global equity strategist expects strong growth. Wood said the consensus forecast for earnings growth for MSCI India this year is 20.3 percent and Jefferies’ India office is forecasting 19.2 percent earnings growth for Nifty next fiscal year.
Union budget 2022
Speaking of the 2022 Union budget, central government capital spending is expected to rise 17 percent yoy after this fiscal year’s estimated increase of 14 percent yoy. As a result, central government capex to GDP will increase from 1.6 percent to 2.9 percent over the three-year period from FY20 to FY23,” the note said.
The projected central government budget deficits for this fiscal year and next year are 6.9 percent and 6.4 percent of GDP, respectively. “This may seem high, but GREED and fear is relatively relaxed as the deficits are mainly driven by investment-related investments. It is also the case that the budget may be too conservative on revenue, as has been the case so far this fiscal year,” the note said.
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