The huge targets are based on few assumptions, and elevated targets should be taken with a pinch of salt.
The Indian market reached fresh record highs on Friday as S&P BSE Sensex hit mount 31k while the Nifty50 climbed 9,600 peak with ease. The S&P BSE Sensex is up more than 16 percent so far in the year 2017 while Nifty50 rallied a little over 17 percent in the same period.
The next question which everybody wants to ask – will the rally continue? Well, the latest analyst estimates according to technical indicators suggest a massive rally for benchmark indices which can take S&P BSE Sensex towards 100,000 and Nifty50 towards 22,000-38,000 in the next 5-7 years.
Most of the technical analysts are not shying away from putting out big numbers because the momentum has proved most of them wrong. The correction which everybody wanted never came as India market raced to a fresh high with renewed optimism.
The journey to Mount 100,000 for Sensex and 22K-38K for the Nifty50 is based on certain assumptions, and elevated targets should always be taken with the pinch of salt.
“We are working with a target of 20,000-22,000 on Nifty by 2022-2024. Government policy and reforms initiated by the Modi government would normally take 5-6 years to give results so we are in that process and with introduction of GST, government focus on Make in India, Ease of doing business, Cleaning of Bank assets, Making India Digitial, Financial inclusion, Cashless economy for which demonization implemented all would pave way,” A.K.Prabhakar, Head -Research at IDBI Capital told Moneycontrol.
“In last 4 years earning have plateau out around 400 in Nifty EPS and order book for Industrials are on the rise. India would be 4 Trillion Dollar economy by 2024, and by 2021 our Nifty EPs could be around 810 in the next leg of growth and if euphoria hits the street then valuation can go anywhere,” he explained.
Even though the target look steep but it is not impossible to achieve. If we remember the S&P BSE Sensex rallied from 2,594 in 2001 to hit 21,208 by 2008 January after which in last 9 years Sensex is just consolidating, while the best part of the rally came from 2003 low of 2,904 which is 7 times in 5 years.
For Sensex, the rally has also just started. From Elliott Wave perspective, the advance from 1979 in the Sensex is a super cycle advance and we are now in the sweet spot of that advance, Mark Galasiewski, Elliott Wave International told a business news channel, ETNow.
“I gave a 15-year forecast of Sensex 100,000 by 2024 and I see no reason to change that or update that forecast because the actual form of the advance is from a technical perspective which is confirmed from April 2009. The Sensex and Nifty have tripled since that time and they can more than triple again over the next several years,” he said.
The next leg of the rally will be led by earnings growth story in India which has remained muted for the past 4-8 quarters. With the economy on the mend, the target is not unachievable but will require a lot of things to move in a similar direction.
With the implementation of goods & services tax (GST), most analysts are factoring in higher earnings growth for largecap companies which are likely to benefit the most from the one nation one tax rule.
“Going by the statement of Mark, the move from 30,000 to 1,00,000 at Sensex could take seven years (2017 to 2024). Numerically, this means average annual returns of close to 18 percent for the next seven years to achieve the target of 1,00,000,” Gaurav Dua, Head of Research, Sharekhan told Moneycontrol.
“It does not sound unachievable given the fact that the Sensex has given compounded annual returns of close to 16.5 percent in the last 39 years – move from 100 in 1978 to 30,500 now (2017),” he said.
Dua further added that with this period of close to 4 decades there has been a period of over 20 percent returns for the multi-year period during in an economic upcycle in India. It could be the same this time around also.
The reason for the 16-18% kind of average annual returns from Sensex can be explained by the average growth rates of around 14 percent in India’s nominal GDP (real GDP + inflation) for the past four decades.
“The top Indian companies constituting Sensex naturally tend to grow at relatively higher rates than nominal GDP which eventually drives 16-18% annual average gains in Sensex over the longer period of time,” explains Dua.
Nifty@12k possible in near term:
If we look at the NIFTY Index, it has been oscillating in a rising channel 2009 onwards and the February 2016 low was right at the support line of the channel. Currently, it is approaching the upper end of the channel in the range of 10,600-10,700.
“In the immediate medium term, the target that I am looking at is 10,600-10,700 on NIFTY. If this resistance of 10,700 is taken out on a closing basis, then we could be looking at a much steeper target of 12830,” Aditya Agarwala, Technical Research Analyst – YES Securities (India) Limited told Moneycontrol.
“However, failure to take out 10,700 on a closing basis can trigger corrections, dragging it back gradually to the lower end of the channel. Therefore, the near-term target that we have on NIFTY is 10,600-10,700,” he said.
Nifty Projection according to Neo Wave analysis
Systematic Shares also undertake long term analysis based on the Neo Wave analysis as propounded by Glenn Neely.
We have done long analysis on Nifty and have projected Nifty trend for next 5 years, here is the detailed analysis of Nifty’s projection for next 5 years, BirendraKumar Singh, AVP – Technical Research, Systematix shares told Moneycontrol.
Nifty: a Mega bull rally in offing, two scenarios possible, explains Singh.
1 ) If Nifty decisively crosses 10,400 by August 2017 then a strong bull rally can be seen the target is placed at 16,500-38,600-54,500 in a time period of 5 years.
2 ) If the Index fails to sustain above 10,400 by August 2017 then the continuation of consolidation with higher bottoms and higher tops formation between 10,000-8600 for another one to two years and then a mega bull rally would begin with a target of 16,500-38,600-54,500 levels.
The entire trend from 920 (May 2003 low) till date is forming a 7-legged a-b-c-d-e-f-g Bow Tie shapped “Diametric” pattern. Wave-f is either completed or still under formation and then a strong upside breakout wave-g is expected. The up move would be for a period of 5 years.
The first leg of up move from 920 (May 2003 low) up to 6,357 (January 2008 high) is marked as wave-a.
The down trend from 6,357 (January 2008 high) up to 2,539 (March 2009 low) is marked as wave-b.
The up move from 2,539 (March 2009 low) up to 6,338 (November 2010 high) is marked as wave-c.
The down trend from 6,338 (November 2010 high) up to 5,118 (August 2013 low) is marked as wave-d.
The up move from 5,118 (August 2013 low) up to 9,119 (March 2015 high) is marked as wave-e.
The down trend from 9,119 (March 2015 high) up to 7,893 (December 2016 low) is marked as wave-f.
It is to be seen whether the up move from 7,893 (December 2016 low) is the beginning of wave-g or wave-f is still under formation.
For the confirmation of wave-g, the Index is required to move decisively above 10,400 by August 2017. In this case, the Wave-g would have a target of 16,500-38,600-54,500.
The Index, if fails to sustain above 10,400 by August 2017 then the formation of wave-f would continue.
In this case, the Index would continue to form higher tops and higher bottoms formation between 10,400 and 8,600 for another one to two years and then wave-g would open upward with a target of 16,500-38,600-54,500.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol are their own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.