Dalal Street’s current rally might be just the beginning of a multi-year massive-bull run, which could take the S&P BSE Sensex to 200,000 points in the next 10 years, said Raamdeo Agrawal, Chairman and Co-founder, Motilal Oswal Financial Services. The stock market veteran added that India has seen steady economic growth over the last few years and key indicators such as democracy, demography, digitisation, dollar reserves, and a stable government are already favourable towards India. The 200,000 target for Sensex in 10 years is nearly four times the current 51,000 levels of the index. Quick calculation shows that this is about 15% CAGR.
What would help Sensex?
Strong economy to aid index: Raamdeo Agrawal has listed down a series of factors that he believes will aid India going ahead. The primary catalyst to reach the 200,000 mark is seen to be a strong economy that sees 12-13% nominal GDP growth. He pegs the real growth to be in the range of 7-8% and inflation around 4-5%. “Trebling of per capita GDP implies 10x opportunity in discretionary & 4x opportunity in savings & investment services,” Raamdeo Agrawal said.
Corporate profits expected to surge: For Sensex to scale 2,00,000, Raamdeo Agrawal expects corporate profit growth to be slightly higher than GDP growth. He estimates that corporate profits will grow at 15% CAGR.
Market growth in line: Dalal Street is expected to move in line with growth in corporate profits. This implies a 15% CAGR, taking Sensex up 4 times in the next decade.
Democracy, Demography: India’s strong democracy and well established federal structure are also seen as enablers in this expected growth. To add to that, India’s youth dominated population is expected to move into the upper-middle-class category by 2030.
Sectors to watch out
In terms of trades that could be favoured over the next decade, complimenting Sensex growth, Raamdeo Agrawal is betting on value migration and open-up plays. Among the top bets is the Information Technology sector. The report says that India has a global competitive advantage in the sector and a long digitalization runway ahead. The IT sector has a 27% share in India Inc’s net profits and a 12.4% share in market capitalization.
Further, the expected move away from public sector banks to private sector lenders has made the latter another bet favoured by Raamdeo Agrawal. The private life insurance sector is another beneficiary of the same public to private migration. Among other sectors that Raamdeo Agrawal lists include autos, consumer durables, paints, and selective industrials.