While the Nifty soared past the 8,000 mark on Monday and stocks hit lifetime highs on the back of encouraging economic data, experts believe there’s room for more upside, reports fe Bureau in Mumbai. A BofA-ML report said markets are likely to double from current levels in the next four years, tracking the trajectory of corporate earnings in the same period. India’s GDP growth for the three months to June came in at 5.7%, the fastest rise in 10 quarters, up from 4.6% in the January-March period.
“Our bullishness is driven by our view that the earnings have turned the corner and we will see earnings doubling over the next four years. We think market returns could mirror earnings growth,” BofA-ML wrote on Monday.
The brokerage believes that while market returns have outpaced earnings growth in the past, in the current rally earnings and markets will move in tandem on account of higher valuations. “In the four years from FY02-06, earnings more than doubled for the Indian markets and for the six years to FY08 earnings tripled. During the same period markets tripled between FY02-06 and went up 5x between FY02-08. In this cycle, market returns far exceeded earnings growth since we started with a low PE of 7x and hence saw the PE re-rating as well. We are presently at PE levels of 15x already and hence market returns to mirror earnings growth,” the report added.