Nifty will hit 30,000 in 5 yrs, Sensex 34,000 in 3: Morgan Stanley

The NSE Nifty will triple in the next five years to hit the 30,000, while in the shorter term, the S&P BSE Sensex will hit 34,000 by June 2018, Morgan Stanley has predicted.

''If you remember, between 2003 and 2007, Nifty earnings compounded at 39 per cent and the index was up sevenfold. We expect earnings to compound by 20 per cent in the next five years, which could take the index towards 30,000. These are very modest estimates,'' Ridham Desai, managing director at Morgan Stanley, said in an interview with CNBC-TV18 on the sidelines of 19th India Summit.

Many factors will contribute to push profit share to GDP, which include a recovery in consumption, as real wages are turning, exports are picking up, and government infrastructure spending is at an all-time high. The only missing piece is private capex, but that should also recover by next year, he feels.

''We are in the midst of a cyclical recovery in the economy which is good for earnings. The market will not go up in a straight line but it is safe to assume that it is a well-entrenched bull market, and there is considerable more upside for the long-term investor,'' said Desai.

For somebody who is looking for a 3-6 months perspective, there will be a lot of problems as valuations look stretched, but that should not worry long term investor.

''Valuations are not my concern, although it looks stretched in the small and midcap space. PE multiples will look lofty at current levels because earnings look depressed. But if we normalise earnings, PE multiple may not look that rich. Therefore, I look at price to book, India is close to its long-term averages,'' said Desai.

He further added that if we look India relative to US markets, its valuations are just off the 2008 lows, which tells us how rich the valuation are. But relative to emerging markets, the valuations are above average which is justified because of India's superior growth and rising return on equity (ROEs).

Sectors which will take up the rally are financials, followed by consumption stocks.

''It looks like investors will underestimate consumption in the country and the reason is the fundamental change which is happening in the households psychology. There is cultural shift which is happening as more and more people in their 20s are borrowing money which advances demand in a meaningful way,'' said Desai.

The per capita income is also going higher which should also fuel demand for non-food consumption.

In financials, Morgan Stanley expects a lot of disruptions which could come from technology or regulations.