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 record high levels of 36,540, a gain of 26% since March 2017. The Sensex and the Nifty have rallied 27% and 28% respectively in 2017 due to factors such as strong macro fundamentals, political stability and global liquidity. The Sensex and the Nifty are up by 7% and 5% respectively year to date and continue to trend upwards. Some of the main sector specific positive developments that lead to the indices rallying sharply includes the push in infrastructure spending and recapitalization of banks by the Government in 2017. The Sensex can gain 9.5% if it touches 40,000.
We maintain our forecast of 40,000 for the Sensex but the index will reach this level 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 continues to hasten the speed of India’s growth leading to surge in equity valuations.
- India’s political climate too looks strong with the Modi led BJP government sweeping state polls in key states such as UP, Gujarat, Himachal Pradesh and striking key alliance in Bihar. The government looks strong enough to get voted to power in the general elections in 2019.
- Corporate earnings growth for Indian companies is showing the new leaders that will drive the markets higher. Index heavyweights of IT and Banks have underperformed markets in 2017 but they are expected to perform better due to Government’s push such as Bank Recapitalisation scheme. There is also 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 in last quarter with growth across the index. Tech giants are showing extraordinary growth that does not seem to be slowing down. Tax rate cut from 35% to 21% would continue to boost profitability and margins for many of the U.S companies, tax rate cute enthusiasm helped the U.S stock markets to reach new record highs post 2016 U.S Presidential Elections.
- Indian Companies 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. Click here for our Sensex 40k ppt.