Sensex cross 100,000 by 2020?

The boldest prediction on where the markets are headed has come from Karvy Stock
Broking when in his report VarunGoel, head of PMS, has said the Sensex could touch
100,000 by 2020.
The Sensex would require 25 per cent compound growth to touch the mark from its current
level. He cites instances where the markets have risen over a long time on a compound rate
of 25 per cent.
From a low of 7,697 in October 2008, Sensex tripled to its current 25,000 during one of the
most trying times.
MotilalOswal, chairman and managing director of MotilalOswal Financial Services, says the
Sensex will touch 30,000 by Budget.
I believe the new strong and decisive government would kick-start the economy and push
the reforms process very aggressively. Lots of things are visible."
Goldman Sachs expects the Nifty to touch 8,300 (27,500 for the Sensex) over 12 months
led by domestic capex-sensitive sectors. Nomura has a Sensex target of 27,200 for year
end. Deutsche Bank AG target is 28,000. Morgan Stanley believes a target of 31,000 for 12
months is possible.
In April, in its India strategy CLSAs analysts had said, "Technical view of the recent
breakout of Indian markets to highs is that of a signal that the long-term uptrend off the
2003 low is resuming. This implies an upside target for Sensex of 39,707 over 12 to 24
months."
Goel of Karvy had assumed a 20-25 per cent growth in earnings, re-rating from 15 times to
16-17 times in the next few years. He expects real GDP to grow six per cent and inflation
seven per cent, which should lead to a nominal GDP growth of 13 per cent.
Goel's assumption for GDP seems realistic given Indias record. In 10 and 15 years, real
GDP has grown an average annual 7.55 per cent and seven per cent, respectively (the
lowest being four per cent in FY03). Other broking firms also expect a higher growth.
Morgan Stanley expects GDP to grow by 6.5 per cent annually over 10 years. In profit
growth, Morgan Stanley expects the financial sector, which it expects will be an integral
contributor and hence a beneficiary, to post a compounded growth of 20 per cent over five
years.
Undoubtedly, profit expansion holds the key for the Sensex to touch the six-figure mark.
During growth phases, profits tend to grow faster than the turnover, which according to
Sabhrawal expands the market capitalisation to GDP ratio. During FY03-FY08 (five years),
Sensex earnings had grown by an average 28 per cent.
In 10 and 15 years, Sensex earnings have grown 12.2 per cent (including three years of
negative growth, FY2000, FY2001 and FY2009) and 16 per cent, respectively.
These will have to improve to 20-25 per cent and remain at those levels till 2020 for the
Sensex to touch 100,000.
Andrew Holland, chief executive, Ambit Investment Advisors, says this run rate in earnings
growth is possible, at least over the next few years. Over the next two-three years, the
earnings growth could range around 25 per cent. This year, I expect an earnings growth of
20-25 per cent and over 20 per cent in the next year."


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Thanks and Regards,
Kirang Gandhi
Independent Financial Planner
http://www.fpindia.in
M-9028142155