Global brokerage firm Morgan Stanley believes that the benchmark equity index BSE Sensex may hit the 68,500 mark in the base case scenario by the end of December 2023, indicating an upside of 12 per cent from the February 10 close of 60,682.70.
In a report on February 9, Morgan Stanley added that India’s relative returns remain under pressure due to the recovery in the emerging market, but it expects absolute returns to improve from 2022.
“Our portfolio strategy includes barbell sector positions with a cyclical bias, a preference for the broad market and stock picking over large caps and macro investing,” Morgan Stanley said.
In the base case scenario, the overseas firm assumed no major up move in commodity prices especially oil and fertiliser (either due to China reopening or the conflict in Ukraine), stable domestic growth, the US does not slip into a recession, RBI exits at 6.5 per cent repo and government policy remain supportive via strong infrastructure spending.
In the bull case scenario (30 per cent probability), Morgan Stanley sees Sensex at the 80,000 mark by the end of the year. On the other hand, it thinks that the 30-share index may touch the 52,000 mark in the bear case scenario (20 per cent probability).
“We remain underweight India in an emerging market on improving conditions for some large emerging markets such as China, Korea and Taiwan. We believe emerging markets are benefiting from a relatively more benign world vs. 2022, and India’s relative valuations imply that its recent underperformance may continue for a few more weeks. India’s relative fundamentals in terms of earnings growth remain strong,” it said.
After gaining over 4 per cent in 2022, the benchmark equity index BSE Sensex stood almost flat in the ongoing calendar year. The index declined marginally to 60,682.70 on February 10, 2023 from Rs 60,840.74 on December 30, 2022.
Morgan Stanley said, “At the helm of India’s outperformance in 2022 was 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 BoP, 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. Not much of that has changed in 2023 and relative valuations, a sore point for India’s relative performance, are also correcting rapidly.”
Also read: IRCTC Q3 impact: Shares fall after four days; what should investors do?
Also read: Multibagger IPO stock hits upper circuit after bonus, stock split announcement