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How much can Dalal Street indices rise in the coming years? Christopher Wood of Jefferies thinks that a target of 1,00,000 is “now eminently achievable” for the Sensex on a five-year view.

In his Greed & Fear report  – Wood’s weekly notes to investors –  the Global Head of Equity Strategy at Jefferies said the target is basis the assumption of a trend of 15 percent earnings per share (EPS) growth and that a five-year average multiple of 19.4 is maintained.

Chris Wood, as he is widely known, expects the Sensex to hit the 1,00,000 mark in FY27 or “sometime in late 2026”. This may seem an aggressive assumption, said Wood, but India has always been a stock market for growth investors with the multiple to go with it.

The remarks from the veteran fund manager come at a time when benchmark indices Sensex and Nifty50 have receded about six percent from all-time highs, touched in October 2021. In January 2022, both came within 1.5 percent of the peaks but reversed course once again.

Sensex 5-year target level assuming 19.4X PE

Year (end-March) EPS YoY (%) Sensex @ 17x PE
FY21 2,196 (10-year average) (Five-year average)
FY22 2,308 5.1
FY23 2,752 19.3
FY24 3,227 17.3 54,849 62,456
FY25 3,711 15 63,077 71,824
FY26 4,268 15 72,538 82,598
FY27 4,908 15 83,419 94,988
FY28 5,645 15 95,932 1,09,236
FY29 6,491 15 1,10,321 1,25,621
Source: Bloomberg, Jefferies

Wood said the strong growth outlook explains the continuing resilience of the stock market despite perceived high valuations. The Nifty now trades at 20.5 times one-year forward earnings, he said.

True, the stock market has corrected by 5.1 percent since peaking in October, but the market would have suffered much more were it not for continuing healthy inflows into domestic mutual funds, the veteran fund manager added.

Here are some other highlights from the Greed & Fear note:

  • India set to record perhaps best earnings growth in Asia this year (behind only Indonesia, and the Philippines)
  • Two external risks to Indian equities: Fed tightening, a spike in oil rates
  • Consensus earnings growth forecast for MSCI India at 20.3%
  • Consensus earnings growth forecast for Asia ex-Japan region at 11.3%
  • “In a G7 world where value investors may finally enjoy an extended period of outperformance overgrowth until at least the Fed performs another U-turn, India should be a prime object of focus for growth-oriented equity investors, be they Asian and emerging market investors or global investors,” he said.

    He said the domestic demand focus will certainly be maintained in Jefferies’ long-only Indian portfolio, which remains broadly unchanged since its inception in July 2021.

    Jefferies’ India long-only equity portfolio contains 16 stocks, with Reliance Industries and ONGC having the maximum weightage.

    Sector Stock Weightage (%)
    Financials ICICI Bank 7
    HDFC 7
    SBI 4
    Bajaj Finance 7
    ICICI Prudential Life 7
    ICICI Lombard General 8
    Energy Reliance Industries 10
    ONGC 10
    Real estate Godrej Properties 8
    Century Textiles 5
    DLF 4
    Auto Maruti Suzuki 5
    Infra L&T 5
    Consumer Jubilant FoodWorks 5
    Material Tata Steel 4
    Logistics Concor 4
    Source: Jefferies

     

     

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