5 factors that can drive the Nifty 50 to 25,000 milestone

The current PE ratio of Nifty 50 stands at 22.9, compared to last year’s historical PE of 21.7. Looking further back, three years ago, the PE ratio remained within a moderate range, not indicating an expensive or cheap valuation. On the other hand, the Nifty Midcap 150 is trading at a PE ratio of 26.7, slightly above its 1-year median PE of 25.1 and its 3-year PE of 26.5. Meanwhile, the Nifty Small Cap 250 shows a higher PE ratio of 27.5, surpassing both its 1-year median PE of 21 and its 3-year PE of 24.6.

The Nifty 50 appears to be neither overvalued nor undervalued, maintaining a balanced position. However, the small-cap segment does show signs of slight overvaluation. Now, let’s explore the factors that could propel the market towards the 25,000 level.

Following are the 5 drivers of the upcoming bull market:

Robust Earnings Growth 

One of the primary indicators of market performance is the earning growth of companies. In 2023, the Indian economy showcases resilience, evident in various sectors such as GST numbers, Auto Sales, banking asset quality, and Manufacturing Index data. The consistent positive trends in these areas suggest a strong foundation for earning growth in 2024. With an expected 15 to 20% increase in earnings, market participants can look forward to a solid fundamental backdrop that aligns with sustained market performance.

Potential Fall in Interest Rates 

After a period of rising interest rates to combat inflation, there are indications that 2024 might witness a reversal of this trend. A fall in interest rates could have profound implications for the market, leading to the availability of cheap money. The repercussions of low interest rates were evident during the COVID-19 pandemic when liquidity surged in the market. Anticipating a similar scenario, investors can expect substantial inflows, particularly from foreign institutional investors (FIIs), providing a significant growth driver for the stock market.

Increasing Retail Participation 

A noteworthy trend in recent times is the growing awareness among small retail investors in India. The injection of over 17,000 crores through Systematic Investment Plans (SIPs) by these retail investors has played a crucial role in sustaining the market despite significant FII outflows in the past two years. This momentum is expected to persist, further contributing to upward market movements.

Expected Stable Government 

Political stability is a key factor influencing investor confidence. As the country heads towards the general elections, recent state elections indicate a likelihood of a stable government with a clear majority. The Bharatiya Janata Party’s (BJP) expected strong performance could be a positive growth factor for the stock market. While the market may have already factored in this scenario, a decisive victory for the BJP would likely bolster investor sentiment.

Real Estate Revival 

The long-awaited revival in the Indian real estate sector is finally underway. The surge in demand for real estate has a ripple effect on related sectors, creating a favourable ecosystem for economic growth. This revival is poised to drive several sectors associated with real estate, potentially acting as a catalyst for overall market performance.

Conclusion 

The Nifty 50’s journey towards the 25,000 milestone appears to be underpinned by a confluence of factors. The market’s balanced valuation, coupled with robust earnings growth projections of 15 to 20%, sets a solid foundation for sustained performance. A potential fall in interest rates could inject liquidity and attract foreign institutional investors, further propelling the market. The increasing participation of retail investors, drawn in by growing awareness and significant contributions through SIPs, adds resilience.

Political stability, anticipated through expected strong performance by the BJP in upcoming elections, is likely to boost investor confidence. Finally, the long-awaited revival in the real estate sector is set to act as a catalyst, fostering a favourable ecosystem for overall economic growth. As these factors converge, they paint a promising picture for the Nifty 50’s ascent to the 25,000 milestone, marking a potential bull market on the horizon.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.