Morgan Stanley sees Sensex at 75,000 in a bull case scenario, where the coronavirus does not resurface and the Reserve Bank remains dovish for a longer period.
The bull-case scenario also factors in India getting included in the global bond indices, which will result in near $20 billion inflows over the subsequent 12 months, oil retraces its recent rise and also earnings growth compounds 25% annually over FY2022-24.
In a base-case scenario, where Morgan Stanley sees it as 50% probability, Sensex will touch 62,000 by December-end.
“We assume that the ongoing Ukraine-Russia tension ends in weeks, future Covid-19 waves will not result in a major restriction of economic activity and a recovery in growth as per our forecasts,” it said in a report.
Indian markets ended down on Wednesday tracking global indices and as banks, financials and IT stocks bled. Stocks fell globally as investors weighed the possibility of aggressive monetary tightening by the US Federal Reserve to fight inflation.
Sensex was almost flat so far in 2022, weighed down the Russia-Ukraine conflict and Fed aggressive actions and commentary to tackle high inflation.
For its base-case scenario, Morgan Stanley assumes that government policy remains supportive and the RBI undertakes a calibrated exit and Sensex earnings compound 22% annually over FY2022-24.
Morgan Stanley said Indian equities have mostly disregarded the supply shock in oil prices revealing some fundamental shifts in market structure and dynamics.
“Indian stocks have held up remarkably well despite the rise in oil prices possibly due to a shift in current account funding to FDI making oil impact linear rather than non-linear and also allowing greater flexibility in domestic policy, falling intensity of oil in GDP, cheaper oil sourcing, positive domestic politics reinforcing the government’s thrust on lifting corporate profits, high relative real policy rates, a new profit cycle, structural domestic bid on equities and growing positivity of multinational companies towards India – our MNC Sentiment index is at new highs,” it said.
However, a persistently high and rising oil price, policy error such as staying dovish for too long or reversal in policy to raise corporate profits are some of the concerns expressed.
Volatility around an inflexion in the rate cycle and margin pressures for Corporate India too bear watching, it said.
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