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I saw this headline on LinkedIn recently: “Nifty will triple in 5 years.”1 The quote was attributed to Ridham Desai, Morgan Stanley’s head of research for Indian equities. Gaurav Sinha, who covers India extensively for WisdomTree, has been making the bullish case for India on our blog, but the potential drivers for the view that Indian markets would triple is something I wanted to learn more about.
I invited Desai onto our “Behind the Markets” podcast to discuss his views with Gaurav and me. At the top of the show, we had the honor of speaking to Viral Acharya, the deputy governor of the Reserve Bank of India (RBI), to hear about policies on which the central bank is focused. You can find the summary of our conversation with Acharya here.
Our conversation with Desai touched on the following points:
The Exciting Moment in India’s Life Cycle: We’ve had a small rise in share prices due to modest changes in earnings. Desai thinks the economic and earnings growth cycle is turning and should support earnings per share growth of 20% per year over the coming five years. During the last big growth cycle from 2003 through 2008, Nifty earnings compounded at 39% per year.2 While Desai believes growth at that rate isn’t likely due to slower global growth conditions, he does see growth at half that rate as very much possible. Desai also sees valuations as being simply “normal” today with potential catalysts to ignite higher multiples that would compound share prices at 24% to 25%per year—which results in his statement that it’s possible for 3x gains in India over the next five years.
Structural Shift in Equity Allocations: One of the big supporters of Indian markets, Desai believes, will come from a growing allocation to Indian equities from Indian households. Changes to retirement accounts that previously were allocated only to Indian bonds are increasing equity flows. Desai compares this to the effect of 401(k)’s in the United States in the 1980s; the plans powered one of the greatest U.S. bull markets in history.
