Investment bank Morgan Stanley has raised its June 2017 base case for Sensex by 15% to 30,000 from 26,000 citing turnaround in earnings growth, reduction in interest rates and global liquidity.
Morgan Stanley's new base case target for Sensex implies an upside of 7.46% from the current levels. On Wednesday, the benchmark index ended up 128.27 points or 0.46% from the previous close at 27,915.89.
“The likely single-digit returns are consistent with the position of India as one of our top picks in EM equities and our cautious view on global equities, where we are expecting downside in the coming months,“ said the report authored by Morgan Stanley's Ridham Desai and Sheela Rathi.
The investment bank said earnings growth cycle is turning, and is likely to accelerate to double-digits in the coming months. Morgan Stanley estimates earnings for Sensex companies will grow at a compounded annual growth rate of 16% over the next two years.
On valuation metrics, multiples are rich relative to emerging markets but in-line with history on an absolute basis and reflect investors' belief in the country's superior growth story in the medium term.
The Sensex is trading at 18.42 times one-year forward earnings, while the MSCI Emerging Market index is at 11.21 times. Among sector preferences, Morgan Stanley is positive on discretionary consumption, retail banks and select industrial stocks.It is underweight on the telecom sector due to rising competition and on consumer staples as valuations are rich. Morgan Stanley is also underweight on the materials and healthcare sector.
Morgan Stanley's new base case target for Sensex implies an upside of 7.46% from the current levels. On Wednesday, the benchmark index ended up 128.27 points or 0.46% from the previous close at 27,915.89.
“The likely single-digit returns are consistent with the position of India as one of our top picks in EM equities and our cautious view on global equities, where we are expecting downside in the coming months,“ said the report authored by Morgan Stanley's Ridham Desai and Sheela Rathi.
The investment bank said earnings growth cycle is turning, and is likely to accelerate to double-digits in the coming months. Morgan Stanley estimates earnings for Sensex companies will grow at a compounded annual growth rate of 16% over the next two years.
On valuation metrics, multiples are rich relative to emerging markets but in-line with history on an absolute basis and reflect investors' belief in the country's superior growth story in the medium term.
The Sensex is trading at 18.42 times one-year forward earnings, while the MSCI Emerging Market index is at 11.21 times. Among sector preferences, Morgan Stanley is positive on discretionary consumption, retail banks and select industrial stocks.It is underweight on the telecom sector due to rising competition and on consumer staples as valuations are rich. Morgan Stanley is also underweight on the materials and healthcare sector.
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