It will be a bull market for the next five years: Rajen Shah

Q&A with CIO, Angel Broking

2013 has started on a promising note for the Indian equity markets with benchmark indices breaching key psychological levels. Rajen Shah, CIO, Angel Broking tells Puneet Wadhwa in an interview that he expects the Indian markets to attract $100 billion in foreign flows over the next five years. While there may be corrections along the way, strong liquidity will ensure that the broad trend remains up, he says. Edited excerpts:
 
With the Nifty breaching 6,000 levels recently and the Sensex regaining the 20,000 levels today, what’s your call on the markets now? Where do we go from here?
 
Our one-year target is 22,000 for the Sensex and the five-year (December 2017) target stands at 45,000. The rise, I feel, will come on the back of liquidity. The next five years will see around $100 billion come into the Indian markets given the huge liquidity squashing around in the world markets.
 
Besides this, I expect the corporate earnings to double in the next five years. Hence, the Sensex EPS (earnings per share) could be around Rs 2,500 and the PE (price-to-earnings) will get re-rated to around 18 – 20x due to the gush of liquidity. It will be a bull market for the next five years.
 
So you mean it will be a secular bull market for the next five years?
 
As I said, the corporate earnings will double and we’ll be growing at 14 – 15% for the next five years. This year, the Sensex will be about Rs 1,300 earnings, which will grow to Rs 2,500 by December 2017. The current PE multiple is a tad above 14x, which will move higher as we go along. The up move has already been started last year and I feel that this will continue for a long time now.
 
But do the macros support this theory?
 
There is ample liquidity in the global markets post the third round of quantitative easing (QE3). The US Government has been printing dollars and the ECB (European Central Bank) has been buying bonds. So, when the dollar is being printed in such a large quantity, its value has to come down. I am very bearish on the US dollar over the next five years. Japan has also announced stimulus measures. So, around the globe, we’ll see currencies weakening.
 
Secondly, there will be no economic growth in Europe, while Japan will grow a little over a% and the US will be growing at around 1.75%. Spain, Portugal, Italy and Greece have their own set of problems. Investors will prefer to invest in India for better returns given that the growth rate here is much higher than in these economies. Hence, money already invested and fresh allocations will happen in the regions, like India, that have the potential to grow. Thus when the wealth starts getting allocated here, the markets will definitely move up.
 
What are your key takeaways / observations when the Sensex hit the 20,000 mark in January 2011 and now?
 
The markets are approaching their all-time high levels. Technically, there can be some resistance around those levels. However, in the last five years when the markets peaked, corporate earnings have gone up by 60%. In other words, while the corporate earnings have shown a rise, the markets are still around the same levels.
 
Talking on fundamental basis, I feel that with the interest rate cuts, the markets (Sensex) will breach the 21,000 levels effortlessly. While there may be occasional corrections, strong liquidity will ensure that the broad trend remains up.
 
How much retail participation do you see as we go along since most of the gains have been largely on account of foreign flows?
Last year, we got around $24 billion in foreign flows. Accounting for the redemptions by domestic institutions etc, we still managed to close the year with a net gain of around Rs 60,000 crore, or $12 billion. Given the redemptions seen in the last calendar year, I don’t see any more redemptions as we go along. Investors who wanted to redeem have already done so. I think once the index crosses 21,000 levels, investors will start flocking to the market. The next five years should see good participation not only from the FIIs (foreign institutional investors), but also from the retail segment.
 
What would you advise someone who wishes to enter the markets at this stage?
 
There are plenty of opportunities available in the market. Mid-and small-cap is the space to be in as this is where big money can be made. I feel that the mid-caps can appreciate 300% in the next five years given my target of 45,000 for the Sensex by December 2017.
 
Can you name the sectors that you think will do well from here on?
 
While most sectors are likely to do well, agriculture, hospital and the insurance sectors are likely to be outperformers.
 
Are there any stocks that you would like to highlight from these spaces?
 
Rallis India, Coromandel Fertilizers, Bayer Crop, United Phosphorous from the agri space; Aditya Birla Nuvo, Bajaj Finserv and Max India from the insurance pack are likely to do well. In the hospital business, we like Apollo Hospitals and Fortis Hospitals.