What are the market stalwarts buying?

Sensex to touch NEW ALL TIME HIGH by 2020

We foresee that after the election dust settles down, Sensex would climb to New All Time High by 2020. We believe the current uncertainty about the general election offers the best entry point for the investor community who are here for a long haul. We present below top 10 rationale for our above belief of Sensex at NEW ALL TIME HIGH by 2020

  1. General Elections 2019
  2. Bull Market 2.0
  3. Index CAGR
  4. FIIs Back with a Bang
  5. Steady Mutual Fund Inflows
  6. Fastest GDP Growth
  7. In Sync With Global Markets
  8. Shift to Financial Asset Class from Traditional Assets
  9. Rural India at Driver’s Seat
  10. Industry and Tax Reforms Undertaken by Modi Govt.

Rationale No. 1
In our view, General Elections offer the best entry point for equity investors. Over the past 20 years, about four fifth of the gains have come during pre-poll lows and up to six months into the new government.

Election Date Nifty levels at lows Gains From Election 6 Months Before & After Elections
Oct 7, 1999 916

51%
May 11, 2004 1,771

18%
May 14, 2009 3,473

80%
May 12, 2014 6,800

39%

Source: Bloomberg

Rationale No. 2
Bull markets in the Sensex which began in March 2009 just completed its 10th year. This has been one of the longest bull market in India, with a slow and steady pace. Now time is for 2.0

Rationale No. 3
Sensex has been on a secular growth path since its inception. Since inception Sensex has given a CAGR return of more than 16%.

Rationale No. 4
FIIs have turned positive on India Story and after remaining net sellers for four years (2015-2018) in a row are now back with a bang in 2019 with net buy of Rs 32,824 cr till date. We believe FIIs are now here to stay as they are now betting on a stable government after election and continuation of the reforms process.

Rationale No. 5
Mutual funds have been on a buying spree in all the last four years when FIIs were net sellers and have supported the equity market. In 2018 alone they have pumped in a record amount of more than Rs 2.6 lakh crore in the Indian equity market. Though the pace of inflows have slowed down of late due to election uncertainty, we are of the opinion that once there is a clear mandate in the election with a stable government formation, mutual fund inflows will again pick up pace and will help the Indian equity market to reach a NEW ALL TIME HIGH LEVEL by 2020.
Monthly Inflows

Yearly Inflows

Rationale No. 6
India is the fastest growing economy in the world. As per IMF, India’s GDP is expected to expand by 7.5% in FY20 and 7.7% in FY21. India’s GDP has grown to ~ US$ 2.5 trillion in 71 years since independence and is is expected to double in next 6 years time to reach US$ 5 trillion by 2025.

Rationale No. 7
The rally in Indian market is in sync with its global peers. If we compare with the global indices then India has actually underperformed its peers YTD in 2019. So there is a good chance for India to catch up with its global peers, which in turn will boost the return from Indian equity market.

INDEX RETURNS ( % CHANGE YTD )
NIFTY 5.20%
NIFTY SMALL 1.40%
NIFTY MID 0.07%
DOW JONES 10.80%
HANG SENG 12.25%
NIKKEI 7.20%
SHANGHAI 21.20%

Rationale No. 8
With lower returns from traditional asset classes like FDs, Real Estate, Gold etc, investors have shifted their savings to financial assets class, like Mutual Funds, Direct Equity, ULIP of Insurance Schemes etc. The demonetization exercise by the Modi government in November 2016 had also added tailwind to this shift from traditional to financial assets. With financialisation of savings, the equity culture has seen tremendous boost amongst the investor community. We believe this equity culture to gather more pace in the coming years as the equity penetration grows in the Tier II and Tier III cities of India. It will in turn help the bull march of Sensex to continue going forward.

Rationale No. 9
India’s consumption story will get its much needed boost in its rural theme. In FY18 rural consumption grew by 9.7% , we expect Rural Spending to grow by more than 10% compared to 8% urban spending in next 3 years. Reverse migration from urban to rural will keep fuelling rural growth with help from government schemes like MNREGA, DBT etc. Rural Consumption (especially FMCG) is at a very nascent stage and have huge potential for growth.

Rationale No. 10
Some of the big reforms undertaken by the Modi government in the last five years like 1.Digitisation, 2. Make in India, 3. GST, 4. DBT, 5. RERA etc will help improve the quality of life of people and will be beneficial for the country in the longer run.

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