Sensex at 85,000; Nifty at 25,000 by 2024? It's very much possible

Current volatility and intermittent corrections notwithstanding, technical analysts see the Sensex hit 85,000 levels and the Nifty50 at 25,000 levels in 2024. This translates into an upside of nearly 53 per cent and 51 per cent, respectively for these indices from the current levels. 

Nifty's 100-week moving average (WMA) is placed at 15,300 levels, which the index held firmly and managed to reverse in the recent correction. If the Nifty manages to cross and hold 16,800 a weekly closing basis, not only will the index recoup the fall seen since October 2021, but will eventually head towards 25,500, as per the Elliott wave theory.

The Sensex, on the other hand, appears to set for 85,000 levels. A confirmation of the trend would emerge once it conquers 57,000 levels and consolidates the gains with good volumes.

However, for the markets to achieve this ambitious target, a number of variables at the fundamental level first need to fall into place to complete the jigsaw puzzle. The biggest of them all being liquidity. 

Most central banks across the globe, including the US Federal Reserve (US Fed) have started to hike rates in order to tame inflation. This has seen foreign investors exit emerging markets in droves. In India, they have pulled out over $33 billion in the last nine months, which has seen the frontline indices slip around 6 per cent each during this period.

Analysts expect the US Fed to keep hiking rates for most part of 2022 and see a U-turn in its stance in order to support growth in the later part of 2023 once the inflation concerns abate.

“The Fed will likely hold rates at an elevated level until core inflation shows greater evidence of slowing to 2-2.5 per cent y-o-y. At that point, we believe the Fed will cut rates by 25 basis points (bps) per meeting, starting September 2023. To avoid policy tools working at cross purposes, we expect the Fed to end balance-sheet runoff after September 2023,” wrote Aichi Amemiya, executive director and US economist at Nomura in a recent coauthored note.

This, analysts say, will see foreign flows return to emerging markets, including India, which will help improve the risk-on sentiment and take the markets into a higher orbit.

“The biggest silver lining is that markets always climb the wall of worry and find ways of making new highs. This has happened post every crisis or war in history. There is a good chance foreign money comes back into the Indian market around Diwali this year,” said Rahul Arora, chief executive officer for institutional equities at Nirmal Bang. 

That said, a sharp deceleration in growth coupled with high inflation and its resultant impact on corporate earnings, analysts said, remains the single biggest risk to the Indian markets in the near term. However, once inflation concerns abate, demand and supply concerns recede, India Inc, analysts believe will be able to clock in better growth rates. This, in turn, will support equity multiples.

The fall from the peak levels, according to analysts at Credit Suisse Wealth Management, has seen Nifty’s 12-month forward price-to-earnings (P/E) ratio of 17.6, according to their analysts, dip toward its 10-year and 5-year (pre-COVID) average of 16.9, which suggests that valuation froth of Indian equities has settled. Once oil prices start to fall, they expect FPI outflows to abate as well.

“For the Indian markets to achieve these levels, the central bank action needs to be favourable over the next two years. That apart, corporate earnings back home need to grow at around 20 per cent in each of the next two consecutive years, which is possible if there is macro-economic stability,” said G Chokkalingam, founder and chief investment officer at Equinomics Research.