Sensex at 300,000? It's very much possible! Here's the calculation

The superior EPS growth rate in India, Goldman Sachs believes, would come on the back of strong structural growth and demographic tailwinds

Global equities are likely to deliver a return of 7.1 per cent per annum in the next 10 years in local currency (7.7 per cent in US dollar terms), according to analysts at Goldman Sachs.

 

India, it believes, is an outlier and could outperform – posting the best earnings per share (EPS) growth in the Asia Pacific (APAC) region in the next 10 years at 13 per cent compounded annually (CAGR). 

 

And if their EPS prediction proves correct, the Sensex could be trading around the 300,000 mark by then (2036), closely mirroring the EPS growth compounded annually at 13 per cent.

   

Earnings growth, meanwhile, remains the primary driver of performance, Goldman Sachs argues, as they expect global earnings—including the impact of buybacks—to compound at around 6 per cent annually. The remainder of returns, the research and brokerage said, would come from dividends, as valuations ease from current highs. 

 

 

Elevated US valuations argue for diversification, wrote Timothy Moe, co-head of Asia macro research and chief Asia-Pacific equity strategist at Goldman Sachs in a recent coauthored note, with a tilt towards Emerging Markets (EM), where higher nominal growth and improving market structures modestly favour EM over developed markets (DM). 

 

“This outlook will also depend on how Artificial Intelligence reshapes the equity landscape, with long-term benefits expected to be broad-based rather than confined to US technology,” Moe said.

 

India to outperform

 

For 10-year growth assumptions, Goldman Sachs began with their top-down earnings growth forecasts for the first two years (14 per cent regional CAGR), and then estimated growth for years 3–10 using historical earnings-to-GDP betas and economists’ GDP projections through 2035. 

 

“This resulted in a baseline EPS growth estimate of 8.3 per cent, consistent with the 10-year historical average, based on weighted regional GDP assumptions of 5 per cent (nominal) / 3.3 per cent (real)," the note said.

 

While earnings growth varies widely across Asia, Goldman Sachs said, it is likely to average 9 per cent for MXAPJ over the coming decade. “India is likely to post the highest growth at 13 per cent CAGR, driven by strong economic fundamentals and demographic tailwinds,” Moe wrote.

 

At this rate of EPS growth of 13 per cent (in India), and assuming that the markets will mirror this growth, the Sensex would trade around the 287,000 mark in 10 years (2036), while the Nifty may hit the 88,700 mark by  then.

 

The superior EPS growth rate in India, Moe believes, would come on the back of strong structural growth and demographic tailwinds, followed by South Africa at 10.1 per cent, North Asia at 10.0 per cent (boosted by tech).

 

"EM Europe (6.9 per cent) and MENA (6.2 per cent) are likely to post the lowest growth given lacklustre Euro area economic growth, the lack of an AI boost to corporate earnings and headwinds from structurally lower oil prices (versus the previous decade) in the case of MENA," the Goldman Sachs' note said.