The 30-stock index is currently trading around 80,949, down 6% or 5,000 points from its lifetime high of 85,978.25, scaled on September 27, 2024. It fell as low as 71,425.01 in April hitting its 52-week low.
“Our BSE Sensex target of 89,000 implies upside potential of 10% to June 2026. This level suggests that the BSE Sensex would trade at a trailing P/E multiple of 23.5x, ahead of the 25-year average of 21x. The premium over the historical average reflects greater confidence in the medium-term growth cycle in India, India’s lower beta, a higher terminal growth rate, and a predictable policy environment,” Desai said.
Here are 8 reasons why the market bulls thinks so:
1) India’s share in global output to riseDesai in a brokerage note, co-authored by Nayant Parekh said that India share in global output is likely to gain in the coming decades, driven by strong foundational factors, including robust population growth, a functioning democracy, macro stability-influenced policy, better infrastructure, a rising entrepreneurial class, and improving social outcomes.
2) Consumer market clout
He argues that the implications of India’s macro tailwinds will make it the world’s most sought-after consumer market. India will undergo a major energy transition, credit to GDP will rise and manufacturing could gain share in GDP.
3) Decline in intensity of oil in GDP
The note said that falling intensity of oil in GDP and rising share of exports in the gross domestic product, especially services, and fiscal consolidation (with likely primary surplus in three years) imply a lower saving imbalance. This will allow structurally lower real rates.
4) Inflation factor
Lower inflation volatility as a result of both supply-side and policy changes mean that volatility in interest rates and growth rates will likely fall in coming years. High growth with low volatility and falling interest rates and low beta will amount to a higher P/E.
5) Household balance sheet
Lower inflation could support the shift in household balance sheets towards equity in the form of a sustained bid on stocks.”The low beta itself emanates from improved macro stability and the structural shifts in household balance sheet towards equities. Price action hides how much stocks have de-rated relative to long bonds and gold and how India is gaining share in global GDP,” the note said.
6) Soft earnings
Desai opines that the soft earnings growth patch that started with 2QF2025 seems to be ending though the market is probably not yet convinced.
Desai’s optimism stems from a dovish central bank but he says that the confidence in future growth would need better clarity on the external growth environment and GST rate rationalization.
7) Tariffs
A final trade deal with the US, more capex announcements, acceleration in loans, uniform improvement in high frequency data and improving trade with China could act as catalysts.
8) FPI trends
While FPI portfolio positioning is at its weakest since the data started in 2000, our view remains that India’s low beta implies outperformance in a global bear market but underperformance in a bull market.
Caveats
Downside risks arise from slowing global growth and worsening geopolitics (with a rise in oil prices and/or continuing disruption in supply chains like rare earth/fertilizers).
Investment strategy
Desai’s most bullish bets remain on the domestic cyclicals, followed by defensives and external-facing sectors. He remains overweight on financials, consumer discretionary and industrials while underweight on energy, materials, utilities and healthcare.
The current market is a stock pickers’ market in his view.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
