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Sensex at 100,000 – How to play India

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There is a lot of chatter, about 100,000. The S&P BSE Sensex is expected to top the psychologically important mark over the next few years. The debate is not about ‘if’ but about ‘when’. Bulls expect the Sensex to scale the peak over the next three years. A conservative prediction expects it to be there in five years. The debate was triggered when Christopher Wood, head of research at Jefferies, a global securities firm, recently said that in a media interaction.

Over the past few days, many data points have discussed India’s resilience. The Organisation for Economic Cooperation and Development (OECD) projects India’s economy to grow at 6% in 2023-24 and 7% in 2024-25 due to a decline in consumer price inflation. The latest World Economic Outlook by the World Bank projects India’s growth at 6.3% for 2023-24 and remains slightly higher in 2025-26. The World Bank highlights a slowdown in private consumption due to high inflation and rising borrowing costs. RBI also expects government consumption to slow down due to fiscal consolidation. India’s government had to let fiscal deficit targets rise to over 10% during the COVID-19 pandemic. The government is committed to bringing it down to the consolidation path, which means cutting back on expenditure. Yet multilateral institutions expect India to remain the fastest-growing large economy. Economic reforms and buoyant tax revenue drive that through the collection of goods and services tax. 

The Reserve Bank of India’s monetary policy committee left key borrowing rates unchanged in its latest meeting. The committee has projected a growth rate of 6.5% for 2023-24. Inflation will likely remain in the 5% to 6% range over the next 12 months. As a result, the policy stance of the committee continues to remain ‘hawkish’. RBI sees headwinds from weak external demand, volatility in global financial markets, continued geopolitical tensions and a potential impact of El Nino on the agriculture sector. These are risks to RBI’s targets of inflation and growth. Yet, many reasons exist to believe the Sensex would continue the march forward. The non-food credit growth of 15.6% indicates a strong flow of money to businesses in 2023-24. After contracting in 2021-22, credit to manufacturing companies expanded to Rs 2,70,000 crore from Rs 1,00,000 crore during the same period last year. RBI surveys also highlight increased spending by these companies. You may want to target businesses that ride on the expansion and growth in India. Despite all odds in the world economy and a threat of a recession in the rich world, India’s economic growth is likely to remain at over 6%. Companies that ride on the back of such growth outperform the GDP growth. According to the stock market thumb rules, their profits grow at more than twice the rate of the GDP growth. A 15% average profit growth yearly (CAGR) could take the Sensex well beyond 100,000 over the next five years.

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