Even as we continue to witness heightened volatility in the stock markets given a confluence of domestic and global factors, global firm Morgan Stanley’s bull case scenario estimates that Sensex could top the 47,000-mark by December 2019. Notably, Morgan Stanley has Sensex target at 42,000 as it’s base case scenario. “After a volatile 2018, on balance equities could be poised for better returns in 2019 with the caveat that the Indian electorate does not deliver a shock verdict in the forthcoming 2019 elections by delivering a fragmented coalition government,” Morgan Stanley said in the report.
The firm noted that it’s December-19 Sensex target at 42,000, represents an INR and USD upside of 20% and 25% compared to its MSCI EM index USD upside of 7%. What could propel Sensex to 47,000? In case of better-than-expected outcomes, most notably on policy and global factors, this could be achieved. The firm noted that in this case, the market starts believing in a strong election result (one party has a clear majority) and earnings growth accelerates to 29% in F2019 and 26% in F2020. This bull case scenario has a 30% probability.
Interestingly, while the firm has a bull case of 47,000 for Sensex, the index could move down to 33,000-level by Dec-19, in case of a bear scenario. If Global conditions deteriorate and the market starts pricing in a poor election outcome (a hung parliament), the index could move down to 33,000. In this case, the Sensex earnings would grow 16% in F2019 and 22% in F2020, as per the firm’s forecasts.
“On our December 2019 target of 42,000, the BSE Sensex would trade at a forward P/E of 16.5x,and at a trailing P/E of 20x, slightly higher than the 25-year trailing average of 19x,” said the firm in the report titled ‘2019 Outlook: Odds in Favor of Equities.’
Morgan Stanley said that India’s relative policy uncertainty appears to be at a cycle peak. “When we combine this with the fact that India is heading into elections,a roll over is the most likely outcome. Surprisingly, despite high policy certainty for four years running, India’s relative performance against EM has been weak. This tells us that on its own policy certainty is not enough to drive share prices,” noted the firm.
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