Sensex at 1,00,000 - A Detailed Look At All the Possibilities
Despite the crises and geo-political dynamics, India is a superpower in making, and any prediction can turn out to be true even ‘a Sensex at 1,00,000 by 2027’, given the resilience the Indian market has displayed.
Indian stock market crashed on January 24, 2021, and Sensex took a dive of over 1500 points—the biggest single-session fall since the previous year of 1687 points. Nearly $130 billion was wiped out of Investor's wealth, and more than $30 billion from the market cap of BSE-listed companies—all in one single day.
Aiding the Sensex plumbings, monetary pressure is currently all-time high with global headwinds staring us in the eye. Geopolitical tensions involving Ukraine and Russia seem to be going in no good direction, soaring Brent crude oil prices—touching the $139 mark on a barrel, out-of-control Consumer Price Index (CPI) inflation at 6.07%, and news of variant waves hitting us occasionally. Then why the prediction of Sensex hitting 1,00,000 points in a couple of years—one may wonder given these turbulences. Are we certain they can be navigated? Is the rude reality check—of people shifting towards extreme fear of their easy money drying up, and acting to withdraw their money—not occurring to anyone?
Let Us Decode What is Happening With Sensex, What to Expect and the Possibilities It Can Bring
To begin with, let us look at the patterns so far of equity markets, such that the 1,00,000 mark doesn't seem that outlandish.
Over the last decade's outlook of the stock market, the Sensex index has delivered modest returns. From 19,445 points in March 2011 to 49,509 in March 2021, it is a 10% return on CAGR. The market faced crises during this period as well—from the IL&FS fiasco to demonetization and outbreak of coronavirus in 2019—and yet Sensex reached an all-time high of 62245.43 points in October of 2021.
Recently, the Sensex is at 57,863 points and a staggering 1,00,000 points in FY27 and 2,00,000 FY32 mean delivering an 11.3% and 13.1% CAGR in 5 years and 10 years period respectively. Looking at the market's historical returns, the target now sounds eminently achievable. Right? Plus the stock market is currently in the greed phase, and one thing that a long-term chart of Sensex since 1990 showed us is that it pulls up in the greed phase. Experts predict it to stay there till April 2024.
Let's Do Some More Calculations Here To Be Cross-checked
With the pragmatic approach, we can easily say that the Indian GDP will grow at the rate of 8-10% in the coming 2-3 years and Sensex is nothing but a combination of best-managed Indian companies to grow faster than our GDP. So assuming the Earnings Per Share (EPS) growth rate is maintained at 15% over the next 5 years, and the average Price-to-Earnings (P/E) to 19.4, hitting the 1,00,000 target by 2027 becomes a possibility.
While India's macro story is all set to be scripted from here on given the astounding economic growth of India over the next decade, the journey from 50k to 100k won't be all smooth.
Union Budget 2022's euphoria hasn't completely soaked in yet, while Finance Minister Nirmala Sitharaman presented the budget focusing on capital expenditure—pushing India towards being the place for growth-oriented stock investors—market exuberance on the other hand has risen high valuations concerns. With proceeds over $16.9 B, India, in 2021, had the best IPO year’ in two decades but also sharp cuts in valuations right after listing, and given that the market has been in correction mode, the pipeline may shrink further. This is only the beginning of a major bull run for India's stock market.
Despite these high valuations, our high economic growth with favorable demographics and recovery in corporate earnings with growth in profit may continue the positive momentum after all.
The Real Threats Aren’t Internal But External.
- If US Federal Reserve tightens the monetary policy too aggressively causing near-term volatility with the surge in US bond yield and even recession
- If oil prices see a further spike hurting India's Current Account Deficit (CAD) with the spillover on the consumption and investment behavior and further inflation
Now whether these assumptions will hold true or not, time will tell.
But what we can do is find resilience in these threats to see how Sensex can derail some of this heat and ultimately back the prediction of the 1,00,000 mark.
1. Resilience in the Rising Interest Rates
While the foreign investors sold $4.8 billion of equities year-to-date because of fear of liquidity tightening in the US, the Indian stock market continues to see healthy inflows into domestic mutual funds. Net inflows into domestic equity mutual funds totaled $9.3 billion in 4Q22 and $22.2 billion since March 2021, with monthly SIP contribution of $1.4 billion hitting an all-time high.
Also, there is a strong improvement in the broader housing cycle after a seven-year downturn, anticipating a broader CAPEX cycle which should be earnings positive. If this translates in due course as was the case in 2002-03, then the Indian stock market will positively become one of the best performing stock markets in Asia as it was once between the years 2003-07.
2. Resilience in Rising Oil Prices
While the tensions on the international front rose, prices of petrol and diesel remained steady for end consumers with a minor excise duty cut in November 2021. With the government monitoring global energy markets as well as potential energy supply disruptions, there is hope.
With respect to the rising CAD on account of rapidly growing non-oil and non-gold imports, India has its foreign reserves currently at $634 billion which is fairly equivalent to 13 months of imports.
With that let us paint a future for India,
A $10-trilllion economy by 2030-32, monthly GST revenues at $26 billion by 2024-25, 100 new unicorns by 2025, poverty below 5% by 2030, and a Sensex at 1,00,000 by 2027.
Sounds about right. Right? Just fingers crossed now on the economic recovery, earnings revival, foreign and domestic flows, and structural reforms.