Comments
Striking a bullish tone on the Indian economy and prospects for equities, Karvy Private Wealth has in its latest ‘India Wealth Report 2018’ concluded that the Sensex could possibly treble by 2025.
“We can compare the present situation to the period 2003-2007 with higher expected EPS growth rates for the next seven years and there seems to be a high probability that the Sensex may treble by 2025 backed by PE multiples higher than the recent history,” said the report.
Stating that the markets are expected to trade at an average multiple of 23 times forward earnings by 2025, Abhijit Bhave, Chief Executive Officer, Karvy Private Wealth, told BusinessLine that there is a strong case of high earnings growth upwards of 18-20 per cent in the coming years. Direct equity has now emerged as the most preferred asset class (among financial assets) in FY17-18, overtaking fixed deposits, according to Bhave.
“We expect strong earnings growth to return in sectors such as banking, financial services, automobiles and good show in FMCG which will boost valuations and help treble the benchmark indices such as Sensex and Nifty by 2025,” he said.
CAGR analysis
The average long-term returns for the Sensex has been upwards of 14 per cent compounded annual growth rate (CAGR). If this is split into certain interim periods it throws up some interesting analysis. Sensex’ returns from 2002 till 2018 has been 15.3 per cent CAGR. But within that period, the returns between 2003 and 2007 stood at 43.07 per cent CAGR and from 2009 to 2013 it was 4.93 per cent.
The Sensex returns from 2009 to 2018 have been 8.53 per cent CAGR. Indian equity markets are yet to witness a sustained bull run to catch up with the average returns for a decade now. There is thus, a strong case for such fast growth in the coming years, which will pull back the equity market returns towards the long-term average, according to the report.
On the physical assets side, the latest India wealth report sees real estate — which grew 10.35 per cent in 2017-18 — surpassing gold to emerge as the most preferred asset class in the next five to seven years.
Taking forward the acceleration of wealth growth over the last few years, individual wealth in India grew 14.02 per cent to reach ₹392 lakh crore in 2017-18. This was achieved by a huge 17.42 per cent wealth growth in financial assets and sober 9.24 per cent wealth growth in physical assets.
Growth drivers
It is estimated that individual financial wealth in India will more-than-double to ₹517.88 lakh crore by 2022-23 at a CAGR of 16.99 per cent. Direct equity and mutual funds are expected to be the growth drivers of this northward trend, growing at CAGR of 24.41 per cent and 21.04 per cent respectively over the next five years, according to the report.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.