Market veteran Raamdeo Agrawal sees Sensex at 200,000 in the next 10 years

Market Outlook

The Nifty50 hit a fresh record high on Friday but the S&P BSE Sensex is still 1,000-point away from its last high of 52,516, recorded on February 16, 2021.

Well, if you missed the 100-day rally from February 16 it is not too later to put the money into equity markets if you have an investment horizon of about 10 years in which the market could go 4x.

Don’t bet against India that is the message from market veteran Raamdeo Agrawal, who has about 3 decades of experience in managing money.

Agrawal is the co-founder and joint managing director of Motilal Oswal Financial Services (MOFSL). He said that India is the next trillion-dollar opportunity. In line with the growth in economy, Sensex too, might hit the magic number of 200,000 in the next 10 years, he said in a note on May 27.

For Sensex to touch this momentous feat, Agrawal expects corporate profits to grow at a slightly higher pace than the Gross Domestic Product (GDP) i.e. around 15 percent CAGR up from 10 percent which Sensex delivered in the last 10 years.

The nominal GDP growth is assumed to be around 12-13%.

Historical data suggests that market growth is broadly in line with corporate profit growth. A 15% CAGR over 10 years would take the index 4x from the current level of 51,422 which roughly translates into an index value above 200,000.

The Sensex has delivered modest returns in the past 10 years as it moved from 19,000 levels in March 2011 to over 49,000 levels in March 2021 which translates into a CAGR or compounded annual growth rate of 10 percent.

During this 10-year period, the market survived crises like demonitisation, ILF&S fiasco, and the most recent COVID-19.

During this period the Indian economy, according to Agrawal has grown at a CAGR of 4 percent higher than world economy but less than China which grew at a rapid pace of 10 percent CAGR during the same period, the note said.

Indian economy grew from $ 1.7 trillion in 2010 to about $ 2.6 trillion in 2020E as compared to Chia which surpassed $ 13 trillion in the same period. India took 60 years to surpass $ 1 trillion, but India could well hit the $ 5 trillion mark by FY2029E, according to Agrawal.

Besides Agarwal, some of the other market experts advised investors to believe in India’s story. Rakesh Jhunjhunwala told Moneycontrol in May that there is scope to make a lot of money, but the problem is Indian’s don’t believe in India. “If fellow India believes in India they will be prosperous,” he added.

Amar Ambani, Senior President & Institutional Research Head, YES SECURITIES who sees Sensex surpassing 100,000 mark by 2025 said that we’ve entered a super-cycle for Indian equities as we had seen in the year 2003 in January 2021.“We see a high possibility of decisive reforms from the government, accelerated earnings growth, and a continued liquidity flow chasing growth in a period of a weakening US dollar,” he said.

Ambani expects Sensex to surpass the 1,00,000 by 2025. A fresh upcycle has resumed for small and midcaps as well, after consolidation in 2018, 2019, and the better part of 2020.

Meanwhile, COVID which caused some uncertainty in equity markets across the globe is now a known beast, says Agrawal. Global and fiscal monetary responses have been encouraging.

The vaccination process which was slowed down is showing signs of a pickup. Agrawal expects a K-shaped recovery in which larger businesses will recover faster.

Investment Strategy:

The right investment strategy according to Agrawal is to opt for ‘value migration’.

Adrian Slywotzxy, a well-known author of economy and management defines value migration where value (i.e. profits & market-cap) migrates from outmoded business design to superior business design.Value migration, he believed, creates a massive opportunity for sectors that see value inflow. Telecom, IT banks, as well as private life insurance companies are some sectors to bet on.

The other theme Agrawal is focused on is Open-up Plays that are likely to benefit the most as the economy opens up post-COVID lockdowns. Sectors like Auto, Consumer durables, Paints, and select Industrials are some sectors Agrawal is bullish on.

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