Abki Baar, Nifty 50-Hazaar

50,000 on the Nifty! There, I said it. It is the season to be bullish on developments in India, and I am extending myself a bit here, but stick along for a bit.

We are at 19,000 on the Nifty—a record high. PM Modi's visit to U.S. was met with much fanfare and announcements around India investments are strong, monthly GST collections are usually around record highs, GDP growth numbers have by and large met or exceeded expectations and while the earnings season passed off without a major accident, the optimism around FY24 is also strong.

Against a 10% earnings growth in FY23, the numbers in FY24 will likely be higher, making it the fourth straight year of double-digit increase for our markets—an unprecedented run! Since the undertone is around growth in India, I thought I'll make an assumption and extrapolate it to arrive at an (outrageous?) number—Nifty at 50,000 by 2034!

But mind you, I am not predicting this. I am not in the business of predictions, but merely reporting predictions. This is merely a simple extrapolation of numbers, and I'll show the readers as to how I have come to that number.

If Nifty, from the current figure of 19,300-odd, grows at 10.5% per annum for the next 10-11 years, we will cross the 50,000 mark. Simple math. The question is: can the index gain 10.5% CAGR for the next 10-11 years? Since markets follow earnings eventually, let's explore if we can do around 11% earnings CAGR for the next 10-11 years. Difficult to gaze that far out, but let's still try. For starters, since FY21, we have done much better than that. The expectations for FY24 EPS are much higher, with Goldman Sachs even quoting a number of 18% growth. Unless something dramatically changes, an 11% number for FY24, to start with, seems safe.

Conversations with companies around their confidence in growth, as well as a small math of the ongoing capex by select private sector firms, would show the confidence that companies have around growth possibilities beyond FY25.

So, if we continue in the same vein, the near-term is sorted. And, if the world growth does not stay lower for longer, and if India can do nominal GDP (actual growth + inflation) of 11% for a few years post FY25, we stand a fighting chance of hitting that mark of 50,000. It is a hypothesis, but one that looks plausible in the current context of growth and investments happening in the country.

A lot of this is technical in nature.

Nifty, as readers would know, as an index omits the weaker hands and includes the stronger ones periodically, ensuring that the best possible companies aiding the earnings of the Nifty 50 stay in the index.

Some of the past years would show that the Nifty earnings growth does not have a very strong correlation to the economic growth in that particular year. Hence, if the National Stock Exchange continues on that path of keeping stronger companies in the index, the probability of steady double-digit earnings growth is high, even if the growth in the economy is not at the same level.

Can the future be different than the past? Nifty is not an earnings-based index, but a free float market cap-based index, and there is a valid argument that there will be multiple revamps till 2034. If the index starts having new companies that will have low earnings in the initial year, then an argument can be made of distortion in PE multiples or forward earnings estimates.

But some of this is also global in nature.

India's contribution to global market capitalisation is estimated to move higher. As per a Goldman Sachs note, India will record the largest increase in global market share, reflecting a favorable demographic outlook and rapid GDP per capita growth. From 3% in 2022, India’s share could move up to 8% by 2050 and even higher later on. Also on account of the fact that emerging markets as a basket will move up from the current 27% to 47% of the world market cap by 2050. In such scenarios, it may not be difficult to attain numbers that are unthinkable right now.

One key question that would come to people's minds is what are the themes that can lead this participation? Frankly, trying to find the first among equals may not be as important a task as staying invested in equity markets. Look around, when markets go through a structural move, financials always head the list of winners. An increase in discretionary income would mean that the discretionary sector could do better than staples.

The real estate sector is on an upcycle, and there is no reason why companies benefitting from the cycle cannot continue to perform well. And India is looking like it's becoming a manufacturing hub, and therefore, companies benefitting out of a manufacturing upcycle may well be on investors' radar.

But like I said, that is like splitting hairs. The actual fanfare may well be in staying invested through this journey.

Niraj Shah is Executive Editor at BQ Prime