In March 2017, we first put out a presentation on why the Sensex will touch 40k in 2019. The Sensex was trading at 29,000 levels when we put out our analysis and it is trading at close to record high levels of 32,600, a gain of 13% since March. The Sensex can gain 22% if it touches 40,000.
We maintain our forecast of 40,000 for the Sensex but the index will reach this level next year, in 2018. The reasons are
- India’s biggest reform since opening the economy in the 1990’s is the launch of GST (Goods and Services Tax), which takes the country on par with the developed world on Indirect Taxes. GST can hasten the speed of India’s growth leading to surge in equity valuations. GST has caused short term pain for the economy as businesses grapple with the new tax regime but as time goes by, the process will smoothen out leading to the full benefits of the one nation, one tax reform.
- India’s political climate too looks strong with the Modi led BJP government sweeping state polls in key states such as UP and striking key alliance in Bihar. The government looks strong enough to get voted to power in the general elections in 2019.
- Global liquidity and rates will stay low for a while as central banks from the Fed to ECB see lack of inflation. Risk appetite will stay high for global investors, driving flows into equity markets.
- Corporate earnings growth for Indian companies is showing the new leaders that will drive the markets higher. Index heavyweights of IT and Banks are largely showing issues in their businesses and have underperformed markets but there is strong traction seen in niche financial services, transportation, retail, consumer durables, road construction and also select companies across sectors.
- S&P 500 earnings growth has been sensational this quarter with growth of 15% across the index. Tech giants are showing extraordinary growth that does not seem to be slowing down. India will benefit from the strong growth in US companies given its capabilities in partnering with global companies.
We have put out a presentation of Sensex at 40k in 2019 for our subscribers. Please do get back to us with comments if you have anything to add or question on our presentation.