Three years of Modi Govt: D-Street gives 4 out of 5 rating; sees Nifty hitting 14,000 in next 2 years
One prime reason for the market optimism is the expectation of earnings growth which is likely to see some recovery in the next two years.
The Modi government completes 3 years in office on May 26 but poll results came out on May 16 which marks the third anniversary of the announcement of BJP’s historic election victory. The milestone couldn't have come in at a better time for investors as markets are trading near record highs.
The Nifty which has already gained over 30 percent in the last three years of the Modi government is expected to touch a record level of 14,000 in his remaining 2 years in office, suggest experts.
The Nifty has rallied from 7,203 recorded on May 16, 2014, on Nifty to 9,450 hit earlier in May 2017. Analysts on D-Street remain constructive on markets and policies initiated by the government, which could double the index from 7K back in 2014 to 14K by 2019.
“It has been good run till now, and many reforms have taken place which will start yielding their benefits in the next 18-24 months. For the next 2 years, we see Nifty hitting a target of 14,000,” AK Prabhakar, Head -Research at IDBI Capital told Moneycontrol.com.
“Infrastructure development has been the focus with India becoming power surplus and reforms are an ongoing process which is a positive sign. GST could be a game changer,” he said.
One prime reason for the market optimism is the expectation of earnings growth which is likely to see some recovery in the next two years. Analysts’ expect India Inc. to deliver double-digit earnings growth in the next two years of the Modi government.
“We expect corporate earnings growth to be in mid-teens over the next two years. This will be an improvement over the trend witnessed over the past few years,” Harsha Upadhyaya, CIO (Equity), Kotak Mutual Fund told Moneycontrol.
“We can expect the market to move in line with expected earnings growth over the next two years. The expectations of earnings recovery, policy push from the government, benign global backdrop and strong liquidity have all contributed to the strength in the market,” he said.
Analysts’ give thumbs up!
Analysts on D-Street are convinced that the chant of NaMo is here to stay for a long period of time as most of them gave 4 out 5 to 3 years of Modi government.
The reform process initiated by the government in the last 12 months will start delivering fruits in the next two years. The road to the goods & services tax is almost clear and effective implementation of ‘one nation, one tax’ reform is expected to be a game-changer for the economy.
Introduction of reforms to curb black money supply, bring down non-performing asset problem in the banking system, making India as one of the best investment destination to attract FDI, stable macro environment are some of the factors which has resulted in renewed optimism.
“We’d give the Modi government high marks for their performance, between a 4 and 5, primarily highlighting the success the government has achieved in strengthening the fiscal position, attracting FDI, reducing inflation, showing fiscal prudence,” Sunil Sharma, Chief Investment Officer, Sanctum Wealth Management told Moneycontrol.
“Secondly, we’d highlight the lowering of interest rates and transmission of lower rates to borrowers. Finally, the other area we’d highlight is the deepening of capital markets that we’re witnessing through record flows, as well as reforms in the real estate space,” he said.
The Nifty going a long way in the next 2 years of NaMo rule. The current valuation may look stretched but if combine the view with the reform process initiated by the government, higher valuations will sustain. Although, some bit of caution prevails in small & midcap space.
The chant of NaMo is definitely here to stay for a long period of time and this is just the tip of the iceberg, suggest experts. Whatever seeds PM Modi sow in the past 3 years like promoting make in India, Demonitisation, RERA etc. will be reaping the benefits in the next 2 years in the form of GDP Growth, fiscal discipline etc.
“The Nifty is trading at a life time high but we feel there is still a huge rally Indian market has to witness. In the last bull run of 2007 nifty was trading at 27x PE and currently at 9400 levels, nifty is trading at 23.89x,” Achin Goel, Head: Wealth Management and financial planning, Bonanza Portfolio Ltd told Moneycontrol.
“This brings the Nifty EPS to Rs.393.78 / share. Due to many structural reforms like solving of NPA problems, with stable commodity prices, and with GST implementation, we would like to allot a multiple of 25x on FY18 EPS of Rs 414/ share bringing the Nifty target to 10,350 by FY18,” added Goel.Full coverage: Three years of Modi government