Christopher Wood, global head of equities at Jefferies said that it will only be a matter of time before Sensex reaches the 100,000 level.
“This target, on a five-year view, now assumes trend 15% EPS growth and that a five-year average one-year forward PE multiple of 19.8x is maintained,” Wood wrote in his GREED & fear weekly newsletter.
He further added that the Indian stock market will continue to climb the proverbial wall of worry.
Last year in February 2022, Chris Wood in a note had stated that India’s benchmark BSE Sensex to hit 100,000 on a five-year view i.e. by late 2026.
“One obvious worry over the next 12 months will be the inevitable questioning of the current consensus, namely that Modi will be re-elected. Another potential risk is a further reduction in retail investor activity following a period when the stock market has traded in a tight range,” the Global Head of Equity Strategy at Jefferies said.
Data shows that active demat accounts have declined from a peak of 38 million in June 2022 to 31 million in April 2023.
Of late, the FII flow on Dalal Street has also taken a U-turn as investors have retreated again from China. “After selling a net $4.5 billion worth of Indian equities in the three months to February, foreigners have bought a net $7 billion since March,” Wood said.
Dedicated emerging market investors, he said, now appear only to be slightly overweight India, relative to history. “One issue here is that India’s neutral weighting in the MSCI benchmarks has always been inappropriately low given the size of the economy. India still accounts for only 13.2% of the MSCI AC Asia Pacific ex-Japan Index,” Wood wrote.
On 26 May, Indian shares opened higher on improved global cues, after witnessing high volatility in the previous session in which the benchmarks reversed losses in the final hour of the May series expiry day. Sensex climbed 178.34 points to 62,050.96 in early trade; Nifty gained 51.1 points to 18,372.25.
On 24 May, Brokerage group Jefferies had said in a note that the Indian stock market may outperform its Asian and emerging market peers in the long term as lofty valuations ease and investors look to bet on the economy’s growth prospects.
The benchmark Nifty 50 Index’s price-to-earnings premium to China’s Hang Seng Index declined to 115 per cent from 208 per cent in end of October, and is in line with the 10-year average of 118 per cent, Wood, wrote in his “Greed & Fear” report.
As per the report, India’s long-term prospects have led the global brokerage to invest 39 per cent of its Asia ex-Japan long-only portfolio in the south Asian country compared with 25 per cent in China.
Further adding, he said, “While foreign investors have sold $2.8 billion on a net basis in Indian markets so far this year, domestic equity mutual fund inflows have remained positive.”
According to official data from the Association of Mutual Funds in India, domestic equity mutual fund inflows in the first two months of 2023 amounted to 282.33 billion rupees ($3.43 billion). The usual challenge of relatively high valuations remain, Wood said, adding that the brokerage will remain slightly ‘overweight’ on India in the Asia Pacific ex-Japan relative-return portfolio.
“The domestic demand story certainly remains intact to justify the continuing belief in the equity market. Loan growth has slowed somewhat but still remains solid … The recovery in the residential property market also continues,” Wood wrote.
Asian banking systems remain remarkably free from stresses, Wood said, citing a slide in the ratio of non-performing loans in Indian banks to an eight-year low.
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