NEW DELHI: The Indian market has been the best performing market so far in the year 2014 across the globe, adding $0.4 trillion to its market capitalisation since December 2013, which contributed nearly 10 per cent to the rise in the world’s market cap.
But analysts on the Street see it rising further in a matter of just two years if macros improve and reforms taken by the newly-elected Modi government start taking shape.
“India has grown faster in market cap from $1.1 to $1.5 trillion, which can double to $3-3.2 trillion by the end of 2016. This level would be at par with other emerging economies, say China, which has a market cap of $3.7 trillion,” said A K Prabhakar, Independent Market Expert.
“We have a stable and pro-growth reformist government after 30 years, which adds strength to our markets. If economic growth shows signs of revival and crude prices remain low, that would push the markets higher by 2016,” he added.
Analysts are quite optimist on Indian markets as the government intends to develop a strong bilateral relationship with developed and developing countries and increase trade and commerce.
“We believe corporates sustainable earnings of 20 per cent and above will start flowing in the next 6-8 quarters, which will add to the Indian markets’ market cap quite substantially. Indian market cap may double in the next 3-4 years and add more value to the global market cap,” said Siddharth Sedani, Vice President - Portfolio Management Service at Microsec Capital Ltd.
India’s market cap was $1.1 trillion at the end of December 2013, which rose to $1.5 trillion at the end of August 2014, as per a Motilal Oswal report.
The Sensex outperformed its emerging market (EM) peers, both in local currency and USD terms. The Sensex currently trades at 17.4x FY15 earnings, which is at a premium to all other EMs,” said the report.
In the calendar year 2014, world market cap increased by USD 3.9 trillion, of which India contributed 10 per cent. India’s contribution to world market cap is at 2.3 per cent, which is above its long period average of 2.1 per cent.
If we compare that with the US, we (India) are not even 1 per cent of the US markets, which has a total market cap of $24 trillion as of August 2014, according to the Motilal Oswal report (refer chart).
The US markets, which have been hitting fresh record highs on a daily basis, have rallied 8 per cent so far in the year 2014, supported by improving macro-economic data. But India manages to steal the show supported by strong global liquidity.
“All markets are hitting new highs. So India does not stand out in that respect. But when compared to other emerging markets, India stands out when it comes to its GDP growth and also its earnings story unfolding over the next two to three years,” said Andrew Holland, CEO, Ambit Investment Advisors.
“Thus, Wall Street hitting new highs is great stuff, but valuations globally, particularly in the US, are looking stretched. I would not say much for a pullback there,” he added.
Sensex can double in 3-4 years:
Riding on the optimism and if there are no geo-political concerns, analysts across the globe have put faith in India’s growth story and see earnings and the index doubling in the next three to four years.
If the Sensex doubles in the next 3-4 years, there is a fair chance of market capitalisation doubling from the current levels in the same period.
The macro-economic data is looking positive, the economic activity is expected to gather steam by 2015 and GDP growth rate might hit the 7 per cent mark in the next two years, say analysts.
They expect that the next leg of the rally will be led by increase in earnings growth and with the economy expected to bounce back, the estimates might not be unreasonable.
“We continue to reinforce our message that earnings are set to double over the next 4 years to FY18 and the market returns could mirror earnings growth,” said Jyotivardhan Jaipuria, Research Analyst at DSP Merrill Lynch (India) and Anand Kumar of DSP Merrill Lynch.
“We continue to be bullish in the long term on the Indian market and believe that buying on dips is a particularly compelling strategy. Our bullishness is driven by the bottoming of the earnings cycle,” added Jaipuria.
With all the optimism around, analysts are not ruling out a target of 100000 on the Sensex in the next 10 years. Possible? Yes, say experts. The rally will be supported by earnings growth, economic revival and reform push by the new government.
“India has a long way to go. The ingredients for a sustained bull market are very much in place and there is good amount of visibility that we will at least go back to the long range profit growth of 14-15 per cent,” said Navneet Munot, CIO, SBI Mutual Funds.
“Considering the fact that valuations are reasonable and if India Inc can deliver growth of roughly around 15 per cent per annum, which is not an unreasonable expectation over a long period, the Sensex can hit 1,00,000 in 10 years,” he added.
