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In a bull case scenario where the virus situation improves, recovery in growth is sustained, and global stimulus supports asset prices, Morgan Stanley has set a target of 59,000 for Sensex (PTI)
In a bull case scenario where the virus situation improves, recovery in growth is sustained, and global stimulus supports asset prices, Morgan Stanley has set a target of 59,000 for Sensex (PTI)

Morgan Stanley overweight on India, sees Sensex at 50,000 by Dec 2021

  • 'Covid-19 infections appear to have peaked, high-frequency growth indicators are coming in strong, Indian companies are picking up activity through the pandemic,' says Morgan Stanley
  • It has upgraded its earlier target of 37,300 for Sensex by June 2021 fas it feels that the coming growth cycle is not fully priced in

As equities staged a massive recovery post-covid lows by hitting new record highs ahead of Diwali, global brokerage firms have started raising their targets for Indian markets reiterating their bullish stance. Morgan Stanley has upgraded its target for Sensex to 50,000 by December 2021 from an earlier target of 37,300 for June 2021 as it feels that the coming growth cycle is not fully priced in, hence there is more upside to the index. It has an overweight rating on India.

The global brokerage firm has also increased FY21, FY22, and FY23 earnings per share (EPS) estimates for the BSE Sensex by 15%, 10%, and 9%, respectively indicating between 6% and 7% above consensus estimates. The target for Sensex implies that the index would trade at a forward price to earnings (PE) multiple of 16 times.

“Covid-19 infections appear to have peaked, high-frequency growth indicators are coming in strong, government policy action is beating expectations, and Indian companies are picking up activity through the pandemic. Thus, we expect growth to surprise on the upside, rates trough to be behind, and real rates to remain in negative territory for several months," Ridham Desai and Sheela Rathi, equity strategists, Morgan Stanley wrote in a note on 15 November.

In a bull case scenario where the virus situation improves, recovery in growth is sustained, and global stimulus supports asset prices, Morgan Stanley has set a target of 59,000 for Sensex. Similarly in a bear case scenario, it sees Sensex at 37,000 if the virus issue lingers well into 2021, and growth falters while India fails to deliver an adequate policy response, leading to losses in the financial system.

Overall, Morgan Stanley expects the small- and mid-caps to beat the narrow indices or large caps in 2021 because it feels that concentration of market cap and profits may have peaked with the return of the growth cycle. It also thinks portfolio returns are more likely to be driven by bottom-up stock picking rather than top-down macro forces, so keep sector positions narrow.

“Return correlations across stocks with the equity market have risen to levels from where they tend to mean-revert. We expect domestic cyclicals to outperform exports, with rate-sensitives and consumers outperforming whereas energy should underperform," said Morgan Stanley.

Last week, Goldman raised Indian equities to overweight on hopes that earnings recovery will lead rally and upgraded Nifty target to 14,100 by 2021-end. Nomura also had increased its target of Nifty 13,640 by December 2021 on expectations that capital flows resulting from improved risk sentiment will drive stocks in the near term.

The bullish stance by global brokerage firms on Indian markets stems from the robust rally markets have registered since the crash in March. Indian benchmark indices have rallied over 60% from the lows hit in March, while making new record highs this week. Improving economy indicators and recovery in earnings have also boosted confidence for Indian equities.

Foreign institutional investors (FIIs) have pumped in $4.15 billion in November so far, highest in last three months while the inflow stands at $10.70 billon for the whole year.

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