With the S&P BSE Sensex a few hundred points away from the 50,000-mark on Thursday, marketmen believe it's only a matter of couple of days for the 30-share index to touch the milestone. It took roughly 10 months for the BSE index to almost double and reach the mark from a low of 25,981.24 on March 23. But, can such rallies continue and Sensex hit 1,00,000 in visible future?
The next 50,000 points aren't going to come by that easy, say analysts. Why? The index first hit 25,000 in 2014 after the BJP-led NDA government came to power with a record majority. It has been a tumultuous seven-year journey from 25,000 to 50,000.
"If we go by corporate earnings and the GDP growth which will drive earnings, it should take about five years. This is a rule of thumb that index takes about five years to double itself. Nobody has a precise science to predict it," Nirmal Jain, Founder and Chairman, IIFL Group tells BusinessToday.In.
Insurers, AMCs -- Key players
Talking about emerging trends in the stock market, Jain says that insurance and AMC firms will play a significant role, having larger weightage in key indices. "The stock market is broadening and deepening. Over the last few years, we have seen new types of companies entering the market such as AMCs and insurance firms. As the economy grows, these segments will grow faster. I see them becoming part of key indices in next few quarters. BFSI is an important segment, in which insurance and AMCs are key components," says Jain.
The dark horses
Among other sectors, metals and infrastructure may emerge as dark horses. "With steel and aluminium prices rising, the integrated players will perform well. IT, pharma and chemicals will continuing doing well, but infrastructure and metal names will surely give decent returns in 2021," says Jain.
Even as the BSE Midcap index is hovering around its all-time high, only a handful of large-midcap stocks have hit their all-time highs. Besides, the BSE Smallcap index is still about 1000-point away from its all-time high. Suggesting that we could still be in the early stage of the bull market, Jain says smallcaps are always the last to enter the market rally. "Mid and smallcap space is a large universe. You can't paint them with one brush. It's a matter of stock-picking. You cannot pick winners without proper advice," suggests Jain.
How to read into valuations
The valuation debate is getting hotter. The Nifty50 quoted its all-time high price-to-earnings (P/E) multiple of 40x on Tuesday as it made an intra-day high of 14,590.65. The country's market capitalisation-to-GDP ratio has hit a high of 98 per cent for India. The stock market is deemed expensive when the ratio goes past the 100-mark.
Jain says that unless you are a savvy investor, you should stick to mutual funds in the existing market scenario. "If you have to invest in stocks directly, don't look at valuations alone. Analyse stocks in terms of management quality, position of the company in the sector and its ability to defend its earnings in the future. So, you have to take a call on future growth vis a vis how valuations look. You cannot look into rear mirror to say how future will look."
There's a flurry of new-age firms listed in the US, but Indian stock market lacks such firms despite over 20 unicorns in the country. "In 2021 itself, we will see internet firms like Zomato, Paytm and Policybazaar to come up with IPOs," says Jain.