Based on a trend 15% EPS growth and a five-year average one-year forward PE multiple of 19.8x, Jefferies analyst Chris Wood forecasts the Sensex will hit 100,000 soon. Wood also mentions Modi’s re-election and a drop in retail investor activity as Indian market risks.
Chris Wood, who is well-known for being an India bull and works as an analyst at global trading company Jefferies, recently stated that it is just a matter of time until the Sensex reaches the level of 100,000.
“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 said in his GREED & fear weekly email. “This target, on a five-year view, now assumes trend 15% EPS growth.”
According to him, the Indian stock market will continue to climb the proverbial wall of concern despite the presence of two potential stress spots in the near future. Long-term bull markets are known to exude confidence, and the Indian stock market is no exception.
“Over the course of the next year and a half, one clear cause for concern will be the unavoidable calling into question of the prevalent consensus, namely that Modi will be re-elected. The Global Head of Equity Strategy at Jefferies stated that another potential danger is a further drop in the activity of retail investors following a time in which the stock market operated within a narrow range.
The number of active demat accounts reached a peak of 38 million in June 2022 and has since decreased to 31 million as of April 2023, according to the data.
Because investors have once again pulled back from China, the flow of foreign institutional investors (FII) on Dalal Street has likewise reversed direction as of late. “After selling a net $4.5 billion worth of Indian shares in the three months leading up to February, foreigners have acquired a net $7 billion worth of Indian equities since March,” said Wood. “
According to what he had to say, it seemed as though dedicated investors in developing markets were only slightly overweight India in comparison to historical data. Given the size of the country’s economy, the neutral weighting assigned to India in the MSCI benchmarks has always been inadequately low. This is one of the problems with the situation. According to what Wood noted, “India still only accounts for 13.2 percent of the MSCI AC Asia Pacific ex-Japan Index.”
Since the Sensex has been trading sideways for the past several months, a leading analyst has stated that profits growth has caught up with values, which has made India less costly than it was previously, both in absolute terms and in comparison to the rest of the region.
The one-year forward price of earnings for the Nifty is currently at 18x, which is just little higher than the 10-year average of 17.4x, and the Nifty PE premium to Asia ex-Japan is currently at 42%, which is also close to the 10-year average of 38%.
“Meanwhile, if the monetary tightening cycle is over, with rate cuts coming either later this year or next year, there is no obvious near-term trigger for a further valuation de-rating save for a bout of external risk-off market action,” said Wood, adding that the property cycle can run for at least another three to four years.
Wood also stated that the property cycle can run for at least another three to four years. Over the past few years, Wood’s Asia ex-Japan long-only portfolio has had an average exposure to India of around 40%. He stated that “within that portfolio GREED & fear has always had since its inception at the end of 3Q02 a weighting in Indian private sector banks which have been the best equity investment story in Asia in the more than 20-year period since the portfolio has been in existence.” “GREED & fear has always had a weighting in Indian private sector banks since its inception at the end of 3Q02.”
