Sensex at 1,00,000 level? Only a matter of time, says Jefferies

Foreign brokerage Jefferies said India's structural story is still intact and that it will only be a matter of time before the BSE benchmark Sensex reaches the 1,00,000-mark -- a target of fascination to India’s "delightfully noisy financial media". The target, Jefferies said assumes 15 per cent EPS growth on a five-year view and that a five-year average one-year forward PE multiple of 19.8 times is maintained.

Still like all long-term bull markets, the Indian stock market will continue to climb the proverbial wall of worry, Jefferies said adding that one obvious worry over the next 12 months will be the inevitable questioning of the current consensus: re-election of Narendra Modi.

Another potential risk is a further reduction in retail investor activity following a period when the stock market has traded in a tight range, Jefferies said noting that active brokerage accounts have declined from a peak of 38 million in June 2022 to 31 million in April 2023.

"Still the Indian domestic asset management story in the big picture remains probably the most exciting globally given the obvious issues in China. The ongoing inflow into domestic equity mutual funds, most of them via the Systematic Investment Plans (SIPs) deducted monthly from salaries, have been the key reason for the resilience of the stock market during the recent monetary tightening cycle," it said.

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Net inflows into domestic equity mutual funds totalled $20 billion in 12 months to April. While monthly SIP

contributions averaged Rs 13,150 crore ($1.63 billion) over the past 12 months.  Foreign investors have also returned of late as net buyers of Indian equities as they have retreated again from China. After selling a net $4.5 billion worth of Indian equities in the three months to February, foreigners have bought a net $7 billion since March, Jefferies cited.

"Dedicated emerging market investors now appear only to be slightly Overweight India, relative to history. One issue here is that India’s neutral weighting in the MSCI benchmarks has always been inappropriately low given the size of the economy. India still accounts for only 13.2 per cent of the MSCI AC Asia Pacific ex-Japan Index," Jefferies said adding that this is why GREED & fear has had an average 40 per cent exposure to India in the Asia ex-Japan long-only portfolio in recent years.

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