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EconomyWhy Morgan Stanley foresees Sensex booming while other assessors issue caveats

Why Morgan Stanley foresees Sensex booming while other assessors issue caveats

Will Sensex breach the mark of 52,000, 68,500 or 80,000 in 2023? Morgan Stanley, Wall Street and Reuters analyse situations that will cause a bull or bear run

Foreign brokerage firm Morgan Stanley foresees BSE Sensex hitting 80,000 by December 2023 if India is included in the global bond indexes and prices of commodities including oil and fertilisers correct sharply and earnings growth compounding at the rate of 25% annually over FY2022-25. It says India might have to wait until early next year to see its bonds enter the JPMorgan emerging market global index. Prickly operational issues have reportedly caused the delay.

Morgan Stanley is not the only body that is upbeat about the Indian stock exchange. The Wall Street brokerage said in a note that the inclusion of India in the global bond indexes could result in nearly $ 20 billion of inflows through the following year while making a bull case for a 30% chance of the blue-chip index hitting the number.

The government and the Reserve Bank of India (RBI) will possibly sort out some of these issues by the end of this year. If resolved, an announcement on India’s inclusion could come early next year.

‘50% chance of Sensex hitting 68,500 by 2023-end’

Caveats in reports by Morgan Stanley, Reuters and others

Morgan Stanley sees a 50% chance of the Sensex hitting 68,500 by the end of 2023 if the effects of the Russia-Ukraine do not spill over to the next year, domestic growth continues its strong path and the US does not slip into a protracted recession.

“Government policy should remain supportive, and the RBI should execute a calibrated exit,” the brokerage company said in a note.

“India is likely to have better growth than most parts of (emerging markets), a sustained domestic bid, a relatively strong macro environment plus light positioning by foreign portfolio investors,” as per Morgan Stanley analysts.

Meanwhile, Ridham Desai of the brokerage firm expects profit share in GDP to double from its current level of 4% to 8% over the next four years, indicating that broad market earnings could compound annually at 20-25%.

In a bear case scenario, the brokerage firm sees Sensex dropping to 52,000 if commodity prices remain elevated, the central bank tightens aggressively and recession in the US and Europe drag down India’s growth. There’s a 20% probability of this, as per Morgan Stanley.

Reuters says local bond settlement rules, tax complexities and the way investors will repatriate dollars are among the operational issues that still need to be resolved. Index investors tend to favour international settlement platforms such as Euroclear but India has said it wants to settle bonds onshore, like China.

Markets hit fresh all-time highs

Indian stocks rose for the fifth session in a row today, with both the benchmark indexes scaling record highs, led by gains in oil marketing companies as crude prices slid following protests in major Chinese cities over Covid-19 controls.

Amid global weakness, the indexes opened lower. But they reversed course to hit all-time intraday highs as oil prices continued their slide on demand worries from top importer China.

The 30-share BSE Sensex surged 211.16 points or 0.34% to settle at 62,504.80, its fresh record closing high. During the day, it rose 407.76 points or 0.65% to its lifetime intra-day peak of 62,701.40.

RIL jumped the most by 3.48%, followed by Nestle, Asian Paints, Bajaj Finserv, Wipro, ICICI Bank and IndusInd Bank among the Sensex pack.

Steel, HDFC Bank, Bharti Airtel, HDFC and Mahindra & Mahindra were among the laggards.

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