The BSE benchmark Sensex can possibly touch 1,00,000-mark in the next six years if the infrastructure cycle is revived quickly by the new government and the corporate earnings grow by 20-25 per cent, claimed a report by Karvy Stock Broking.
The 30-share Sensex is hovering around 25,000 mark at present. The stock markets have witnessed strong rallies, mainly fuelled by expectations from the Narendra Modi-led BJP government .
According to the report, if the infrastructure cycle revives quickly, the earnings growth revival will be faster with even 25 per cent compounded annual growth rate (CAGR) looking possible.
"A multiple rerating is also possible as cost of equity goes down in the next few years with the decrease in risk free rate. An earnings growth between 20-25 per cent and multiple rerating from 15x to 16-17x in the next few years can lead to a 25 per cent compounding of Sensex returns, which will take it to 100,000 levels by calendar year 2020!," it said.
The key index breached the crucial 25,000-mark for the first time ever on May 16 when election results gave a clear mandate to BJP. The bellwether index yesterday closed at all-time high of 24,858.59 points.
FIIs have reaffirmed their commitment towards Indian equities with more than $20 billion invested in 2013.
"We see 2014 bringing a new bull cycle into existence. A strong export sector, revival in investment activity, continued recovery in US and a stable euro area are significant positives for equity markets. With domestic macro-economic data also on the mend, we are aggressive buyers of Indian equity," it said.
For the current fiscal, it expects a Sensex earning per share (EPS) growth of around 15 per cent.
"Despite so many negatives plaguing the economy, corrective measures by the new government can quickly revive growth. From an equity market stand-point, macro-economic revival in India will open opportunities to make strong returns in the next few years," it said.
The report projects a GDP growth of 6 per cent in 2014-15 and economy is expected to see a revival of growth and earnings cycle.
Citing past instances, the report said, the Dow experienced its most spectacular rise in history in 1980s.
From a meager 777 on August 12, 1982, the index grows more than 1,500 per cent to close at 11,722.98 by January 14, 2000.
There is no reason that India can?t see a prolonged economic growth cycle with low inflation, it said, adding, the prolonged economic growth can create similar equity market returns in India as seen in United States in 1980s.