Even as the benchmark NSE Nifty continues rise by leaps and bounds in the direction of hitting 10,000, Morgan Stanley expects the benchmark index to reach far beyond — at 30,000 in the next five years, on the back of renewed consumption, greatly improved exports and infrastructure spending by the government, Ridham Desai, MD, Morgan Stanley, said in an interview with CNBC-TV18. This roughly works out to a CAGR of 25.33% for the Nifty over the next five years.
Desai added that these three factors together will cause the fourth essential factor, capital expenditure by the private sector, to recover in the next 12 months. “If you remember between 2003-2007 Nifty earnings compounded at 39 percent and the index was up 7-fold, we expect earnings to compound by 20 percent in the next 5 years which could take the index towards 30,000. These are very modest estimates,” he said.
Desai said that the valuations seem to be high in Mid-caps and small caps, but he is confident that long-term investors can still generate loads of profit. “We are in the midst of a cyclical recovery in the economy which is good for earnings. The market will not go up in a straight line but it is safe to assume that it is a well-entrenched bull market, and there is considerable more upside for the long-term investor,” he said.
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Desai added that current PE multiple seems high as the earnings are depressed and if these earnings were to be normalised then the current PE multiples would not seem high, and therefore he looks at the PB multiples because they do not involve cyclicality in earnings. “On price to book India is at about close to its long-term average. So it not cheap in the conventional sense, but it is also not rich. These are not levels at which you can make a market call on valuations,” he said.
However, for investors with a perspective of 3-6 months, Desai had some words of caution. “For somebody who is looking at it from a three to six months perspective, I can give you a lot of problems that the market is going to face,” Desai said.
(Originally published on Tuesday, June 6 on www.financialexpress.com)