Sensex may breach 100k in 5 years as reforms take hold

Robust foreign liquidity flows fuelled by ultra-loose policies at global central banks catapulted the BSE Sensex beyond 50,000 on Thursday. A revival in earnings growth and structural reforms can propel the index to the 100,000-mark in the next five years, or even earlier, market experts said.

“Fundamentally, if you see, the last 20 years’ earnings growth for the Sensex has been 10.5% and the returns over the same period have been 13% on a compounded annual growth rate (CAGR) basis. Assuming the same continues and on a higher base, we should be able to hit 100,000 in next 5-7 years,” said Amit Shah, India equity research head, BNP Paribas India.

According to Shah, the growth will be led by IT services, financials, telecom, pharma and consumer staples. “These sectors either have the potential to be businesses of tomorrow or have businesses that can continue to reach the Indian masses and hence ensure a sustainable growth trajectory,” he said.

Others concur. Amar Ambani, senior president and institutional research head, Yes Securities, believes that the Sensex may cross the 100,000-mark by 2025. “We have entered a super-cycle for Indian equities, as we had seen in the year 2003. We see a high possibility of decisive reforms from the government, accelerated earnings growth and a continued liquidity flow chasing growth, in a period of weakening dollar,” he said.

The Sensex, which first hit 1,000 in 1990 took almost three decades to touch the 50,000-mark, crossing milestones such as the dotcom boom and bust, followed by a global growth rally which ended with the global financial crisis, then a sharp liquidity-driven rally, taper tantrum, European debt crisis and the covid-19 pandemic.

Indian corporate earnings have been muted in the decade gone by. “Hope for an earnings revival, as ever, remains intact as India emerges out of the crisis. The last decade also saw near-historical low interest rates, both in India and globally, which would have a defining impact on consumption, growth outlook,” said analysts at Motilal Oswal.

Foreign institutional investors led the investments in Indian markets in 2010-20. During the decade, FII investments in Indian equities stood at $107.38 billion, with only four years of outflows. Domestic institutional investors (DIIs) have invested $23.94 billion in Indian shares, with mutual funds being the major contributor, which tapered off in 2020.

Binod Modi, head of strategy at Reliance Securities, said, “Outlook for domestic equities remains bright. Low awareness about equities, the dominant share of traditional asset classes in households’ investments and the absence of robust technology were key headwinds in India. In spite of these, Sensex registered around 14% CAGR growth over the last 30 years, which is commendable.”

According to Modi, ongoing financial inclusion, dismal returns from traditional asset classes, improving share of households’ investments in equities/debentures and rising awareness among millennials are likely to aid equities in the long run.

“Equities are likely to remain the best investment avenue from the long-term perspective, and the benchmark index is poised to maintain a long-term growth rate of 13-14% in subsequent years,” he said.