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Business News/ Markets / Stock Markets/  Indian stock Market may witness rise in volatility in the near-term due to these 7 reasons as per Morgan Stanley
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Indian stock Market may witness rise in volatility in the near-term due to these 7 reasons as per Morgan Stanley

Stock Market today- Seven reasons that may lead to rise in volatility in the markets in the near term as per Morgan Stanley Equity Research include- Elections, cues from US stock and bond markets, oil prices, corporate earnings, monetary policy, bond flows and rise in net issuances.

7 reasons that could lead to market volatility in the near term include Elections, cues from US stock and bond markets, oil prices, corporate earnings, monetary policy, bond flows and rise in net issuances. (REUTERS)Premium
7 reasons that could lead to market volatility in the near term include Elections, cues from US stock and bond markets, oil prices, corporate earnings, monetary policy, bond flows and rise in net issuances. (REUTERS)

Morgan Stanley Research in its latest note on India Equity Strategy titled- “Is the Market Overbought? “, expects rise in market volatility in the near term due to seven factors.

“Some of our technical indicators are approaching sell zone but not all, even as fundamentals are at just about mid-cycle levels with more upside in the coming quarters. We expect a further rise in volatility" said analysts at Morgan Stanley in their report.

7 Key reasons that could drive volatility in the near terms include

1-  Elections likely in April/ May 2024- The general elections are scheduled to be held in a few months from now and remain watched for even though outcome in recent state elections has lead investors to believe that the ruling party may return to power.

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2- The cues from US stock and bond markets- the highlighted point by Morgan Stanley remains important as markets have started factoring rate cuts by March and cues on the same will be watched for by the global markets and Indian markets.

3-oil prices – while India remains less affected than in the past, further rise is oil prices will present headwinds said analysts at Morgan Stanley.

4) Earnings – Analysts at Morgan Stanley said that their estimates are ahead of the consensus. India remains among the top picks of Morgan Stanley. The India fundamentals are underscored by strong macro stability as a result of improving terms of trade, flexible inflation targeting and stable non-portfolio foreign flows, earnings growth of about 20% annually over the next three to four years led by an emerging private capex cycle, re-leveraging of corporate balance sheets and unfolding of a structural rise in discretionary consumption and a reliable source of domestic risk capital, as per analysts at Morgan Stanley. These factors as per them have reduced both correlations and volatility of Indian stocks relative to emerging markets.

5) Monetary policy – Analysts at Morgan Stanley said that base case for India’s monetary policy is a status quo but inflation and Federal moves are key and monetary policy;

6) Bond flows could start affecting the BoP (balance of payment) positively starting next year. 

India government Bonds are likely to be included in JP Morgan’s widely tracked Government Bond Index-Emerging Markets (GBI)- starting June 28, 2024.

7) Rise in net issuances that could moderate the strong domestic bid amidst greater volatility in FPI flows.        \

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Morgan Stanley BSE Sensex base case target at 74,000

Morgan Stanley’s BSE Sensex target of 74,000 implies upside potential of 4% to December 2024. This level suggests that the BSE Sensex will trade at a trailing Price to earnings multiple of 24.7 times, ahead of the 25-year average of 20 times. The premium over the historical average reflects greater confidence in the medium-term growth cycle in India, said analysts at Morgan Stanley.

Base case (50% probability) – BSE Sensex: 74,000: Morgan Stanly assumes continuity in a government with a majority mandate, robust domestic growth, the US does not slip into a protracted recession and benign oil prices. Government policy remains supportive, and the RBI executes a calibrated exit from its current hold stance. Sensex earnings are expected compound 21.5% annually through FY2026 as per JP Morgan.

Bull case (30% probability) – BSE Sensex at 86,000: In addition to the above, the bull case target for Sensex is dependent on oil prices dipping into the $70s or below resulting in lower domestic inflation and deeper rate cuts from the RBI, the US growth cycle renewing with global share prices responding with a strong up move and bond flows surprise to the upside. Earnings growth compounds 24% annually over FY2023-26.

Bear case (20% probability) – BSE Sensex: 51,000: The bear case probability can be led by elections delivering an unclear mandate with a change in government, oil prices surge past $110 a barrel, the RBI ends up tightening to protect macro stability and a US recession leads global growth lower. Sensex earnings compound 15.5% annually over F2023-25E with meaningfully slower growth in FY2025 and equity multiples de-rate to reflect poor macro condition.

 

 

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ABOUT THE AUTHOR
Ujjval Jauhari
Ujjval Jauhari is a deputy editor at Mint, with over a decade of experience in newspapers and digital news platforms. He is skilled in storytelling, reporting, analysing and writing about stocks, investment ideas, markets, corporates and more. He is based in New Delhi.
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Published: 08 Jan 2024, 05:33 PM IST
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