Karvy sees sensex at 100,000 by 2020





The NaMo wave on Dalal Street has caught the imagination of investors and analysts with many coming out with their own long-term sensex target. Recently , Deutsche Bank set a sensex target of 28,000 by this yearend while Religare said it expects a sensex level of 32,000 by March 2015. However, on Wednesday , domestic broking house Karvy Stick Broking beat all others and predicted a sensex target of 100,000 by 2020. In other words, Karvy is expecting the index to jump four fold from its current level in about six years.

According to Varun Goel of Karvy , the sensex target level is based on the expected strong macro-economic growth and also equally strong rise in earnings of the sensex companies.
Goel believes in the current fiscal (FY15), India's GDP would grow at 6% from 4.7% last year.
With an inflation rate of 7%, the nominal GDP growth would be 13% and the earnings of sensex companies would be about 15%. "We would believe that earnings growth for the next 5-6 years business cycle should be at least 20% per annum, considering the economy will revive from a very low base," Goel wrote in a note.
This could be boosted even more if the infrastructure cycle revives quickly . In that case, the earnings growth could even touch 25%.

"A multiple re-rating is also possible as cost of equity goes down in the next few years with the decrease in risk-free rate.
An earnings growth between 20-25% and (the price-to-earnings) multiple re-rating from 15x to 16-17x in the next few years can lead to a 25% compounding of sensex returns, which will take it to 100,000 levels by 2020," the note said.

Karvy expects a new bull cycle to begin in 2014, supported by a strong export sector, revival in investment activity, continued recovery in US and a stable Euro area are significant positives for equity markets.