Morgan Stanley sees Sensex at 80,000 in bull case scenario. Here’re base & bearish scenarios

Foreign brokerage Morgan Stanley said it sees 30 per cent probability of Sensex hitting the 80,000 mark by December 2023 in its bullish case scenario. The scenario assumes India is included in the global bond indices, resulting in nearly $20 billion of inflows over the subsequent 12 months. Besides, it assumes  commodity prices including oil and fertiliser correct sharply and earnings growth compounding 25 per cent annually over F2022-25E.

The target suggests a 28 per cent potential upside over Sensex’s Monday closing level of 62,504.80.

In its bearish scenario, it sees probability of Sensex touching 52,000 at 20 per cent. In this scenario, Morgan Stanley assumed price oil and other relevant commodities (especially fertilisers) remaining elevated and RBI ending up tightening money policy aggressively to protect macro stability. The scenario sees a  protracted recession in the developed world dragging down India’s growth. It sees Sensex earnings compound at 18 per cent annually over F2022-25E, but equity multiples de-rating to reflect poor macro conditions.

Meanwhile, Morgan Stanley sees a good 50 per cent chance of Sensex hitting 68,500 by December 2023.  This scenario assumes that the effects of the Ukraine-Russia conflict (elevated commodity costs) do not spill over into 2023 and that domestic growth continues its strong path as per our forecasts. Morgan Stanley assumes the US does not slip into a protracted recession. The government policy remains supportive and the RBI executes a calibrated exit, it assumed.  In this scenario, Morgan Stanley expects Sensex earnings compound 22 per cent annually through F2025E.

The base case suggests a 9.6 per cent potential upside.

While suggesting that the bulls market is intact, Morgan Stanley said “at the helm of India’s outperformance has been government policy, including a structural rise in the domestic equity saving pool, a boost to corporate profit share in GDP and a focus on FDI flows, which raised the share of FDI in balance of payment, allowing India to run monetary policy that is less sensitive to the US Fed and reduced the equity market’s sensitivity to US growth conditions and oil prices.”

Emerging markets, Morgan Stanley said, are likely to benefit from a relatively more benign world vs 2022, and India’s trailing outperformance could take a breather in 1H2023, given relative valuations, it said.

“While we expect the domestic bid on shares to continue and also predict buying by foreign portfolio investors, part of this demand will likely be met by renewed primary market activity. Going into H22023, the market should start factoring in its view on the general elections (slated for May-24) with either outright repositioning or considerable hedging of portfolios,” it said.

Goldman Sachs last week expected Nifty to touch 20,500 by December 2023-end. It expects Indian equities are less likely to outperform for the third successive year in 2023, as it feels that China and other globally cyclical North Asian markets, notably Korea,  could perform better on China reopening catalysts and global recovery expectations in 2024. While the brokerage remained bullish on India’s long-term prospects, high starting valuations and near-term cyclical considerations prompted it to give India a ‘marketweight stance’ last week.

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