Sensex 1 lakh in 5 years: Chris Woods big prediction

NEW DELHI: Well-known India bull Chris Wood of global brokerage firm Jefferies has said that it will only be a matter of time before Sensex reaches the 100,000 level.

"This target, on a five-year view, now assumes trend 15% EPS growth and that a five-year average one-year forward PE multiple of 19.8x is maintained," Wood wrote in his GREED & fear weekly newsletter.

Exuding confidence like all long-term bull markets, the Indian stock market will continue to climb the proverbial wall of worry, he said, citing two stress points in the near term.

"One obvious worry over the next 12 months will be the inevitable questioning of the current consensus, namely that Modi will be re-elected. Another potential risk is a further reduction in retail investor activity following a period when the stock market has traded in a tight range," the Global Head of Equity Strategy at Jefferies said.

Data shows that active demat accounts have declined from a peak of 38 million in June 2022 to 31 million in April 2023.

Of late, the FII flow on Dalal Street has also taken a U-turn as investors 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," Wood said.

Dedicated emerging market investors, he said, 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% of the MSCI AC Asia Pacific ex-Japan Index," Wood wrote.

With the Sensex trading sideways in the last few months, the top analyst said earnings growth has caught up with valuations and made India not as expensive as it was both in absolute terms and relative to the region.

Nifty's one-year forward PE at 18x is only slightly above the 10-year average of 17.4x, while the Nifty PE premium to Asia ex-Japan at 42% is also near the 10-year average of 38%.

"Meanwhile if the monetary tightening cycle is over, with rate cuts coming either later this year or next year, there is no obvious near-term trigger for a further valuation de-rating save for a bout of external risk-off market action," Wood said, adding that the property cycle can run for at least another 3-4 years.

Wood's Asia ex-Japan long-only portfolio has had an average 40% exposure to India in recent years. "Within that portfolio GREED & fear has always had since its inception at the end of 3Q02 a weighting in Indian private sector banks which have been the best equity investment story in Asia in the more than 20-year period since the portfolio has been in existence." he said.

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