Jefferies' Chris Wood predicts Sensex crossing 100,000 in 5 years

According to Chris Wood, an analyst at global brokerage firm Jefferies, it is only a matter of time before the Sensex, India's stock market index, reaches the 100,000 level. Wood's five-year view assumes a trend of 15 percent earnings per share (EPS) growth and the maintenance of a five-year average one-year forward price-to-earnings (PE) multiple of 19.8x.

Wood believes there is no obvious near-term trigger for a further valuation de-rating of Indian stocks, as long as the Reserve Bank of India (RBI) pauses the tightening of its monetary policy. He suggests that if the monetary tightening cycle is indeed over and rate cuts are expected later this year or next year, there would be no immediate reason for a further de-rating of valuations.

Wood argues that Indian stocks are not as expensive as they were last year, both in absolute terms and relative to the region. As a result, he has increased his overweight position in Indian, Korean, and Taiwanese stocks by 100 basis points in his Asia-Pacific ex-Japan portfolio.

In his portfolio adjustments, Wood has removed HDFC Life Insurance and Standard Chartered Bank, and added Zomato and SBI Life Insurance. He has also increased weights for AIA Group, Bank Central Asia, Bajaj Finance, Godrej Properties, and Macrotech Developers.

Wood states that like all long-term bull markets, the Indian stock market will continue to face concerns and uncertainties. However, he remains constructive on India and sees the defeat of Prime Minister Narendra Modi in general elections as the biggest risk to the country's growth story.

One of the positive factors highlighted by Wood is the expected end of the monetary tightening cycle, as inflation has been falling in recent months. Headline inflation in India dropped to 4.7% in April and is anticipated to decline further to around 4% in May. Wood predicts average inflation of 5% for the financial year and expects a cut in policy rates either later in the current year or in the following year.

Foreign investors have also returned to the Indian equities market, becoming net buyers again after a period of selling. In the three months leading up to February, foreigners sold $4.5 billion worth of Indian equities on a net basis, but since March, they have bought shares worth $7 billion on a net basis.

In summary, Chris Wood of Jefferies is optimistic about the Indian stock market's potential, projecting the Sensex to reach 100,000. He believes that if the RBI pauses monetary tightening and inflation remains under control, there is no immediate reason for a further de-rating of stock valuations. Wood has increased his allocation to Indian stocks and sees a defeat of Modi in general elections as the most significant risk.