Home / Markets / Stock Markets /  Morgan Stanley lowers year-end Sensex target, but still higher from current levels

Morgan Stanley has lowered its year-end Sensex target to 62,000 from 70,000 earlier, with its Bull case target revised to 75000 and bear case target increased to 45,000 from 50,000 earlier. Its new Sensex target for December 2022 is 11% lower and suggests 16% upside from current levels.

Implied volumes and market breadth, among other indicators, are suggesting the market is likely to find a floor sooner than later. That said, a rise in domestic policy rates may bring another bout of volatility beyond geopolitics, Morgan Stanley said in a note. 

“Our revised BSE Sensex target of 62,000 implies upside potential of 16% to December 2022. This level means that the BSE Sensex will trade at a trailing P/E multiple of 25x, ahead of the 25-year average of 20x. The premium over the historical average reflects a higher confidence in the medium-term growth cycle in India," it added.

Indian stocks have held up remarkably well despite the rise in oil prices, possibly due to a combination of a change in macro funding mix to FDI, falling oil intensity in GDP, high real relative policy rates and a strong domestic bid on stocks. 

That said, the length of the military action in Ukraine could determine its impact on earnings and multiples. Interestingly, Sensex is now in a bear market in oil terms, the global brokerage highlighted.

"India is currently running all-time high real policy rates relative to the US, which coincides with strong relative performance vs EMs. We expect this gap to narrow combined with lower outperformance for Indian stocks,"

Within cyclicals/rate sensitives, MS is overweight on Financials, Consumer Discretionary and Industrials and UW Utilities, Energy and Materials. In defensives, it has double upgraded Technology and is underweight on Consumer Staples (from equalweight) and stays underweight on Healthcare. 

“Indian equities have so far resisted the rise in oil prices. While the template remains one of high volatility and modest equity returns, at the portfolio level we recommend a shift to a barbell strategy with wider sector positions," the global brokerage highlighted.

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