Analysts at Morgan Stanley have updated their outlook for the Indian markets, and they now expect the Sensex to hit the 107,000 mark by December 2026 in a bull-case scenario, translating into an upside of 26 per cent from current levels.
'An asset must generate income. Equities yield dividends, bonds pay coupons, deposits give interest, and real estate earns rent.' 'Gold, silver, and even Bitcoin produce no income, they merely store value. So, they should not be compared to productive assets.'
The risk-reward for the Indian markets, Morgan Stanley said, is turning favourable.
Job creation, improving farm productivity, and mobilising public funds for infrastructure development were some of the issues that figured during the interaction between Prime Minister Narendra Modi and economists ahead of the 2025-26 Union Budget. The prime minister on Tuesday met eminent economists and sectoral experts at NITI Aayog to hear their views and suggestions for the upcoming Budget. Union Finance Minister Nirmala Sitharaman is scheduled to present the Budget for 2025-26 in the Lok Sabha on February 1, 2025.
'China is struggling to get out of its property bubble.' 'Japan took 35 years to walk out of its equity bubble.' 'Bubbles can be difficult to forecast.'
India Inc's net profit as a percentage of the country's gross domestic product (GDP) is just shy of reaching 5 per cent, bolstered by strong earnings growth in the second quarter of 2023-24. Analysts interpret this as an indication that a corporate profit upcycle is in progress, with projections suggesting that this share could exceed 8 per cent within the next five years, driven by bullish earnings growth expectations. "We believe we are only halfway through a profit cycle, with the profit share in GDP rising from a low of 2 per cent in 2020 to about 5 per cent currently, and likely heading to 8 per cent in the coming four to five years. "This implies about 20 per cent compounding of earnings growth. "Underscoring this forecast is the start of a new private capex cycle, under-geared balance sheets, a healthy banking system, lower corporate tax rates, improving terms of trade, and structural consumption demand outlook albeit somewhat offset by likely consolidation in government deficit," said Ridham Desai, managing director, head of research, Morgan Stanley India in a note.
After the massive sell-off since October, foreign portfolio investors (FPIs) are no longer the biggest non-promoter-shareholders in top Indian companies. This has happened for the first time in over a decade. "At 25.6 per cent ownership of India's largest 75 companies, domestic investors are now larger holders than FPIs for the first time since 2010," said Morgan Stanley strategists Ridham Desai, Sheela Rathi and Nayant Parekh in a note.
Higher valuation creation in companies beyond the top 100 has given the domestic markets a shot at a $4 trillion market capitalisation (mcap) - a club exclusive to three countries currently. On November 23, the mcap of all BSE-listed stocks finished at a new record of Rs 328.33 trillion ($3.94 trillion), despite the benchmark indices ending with losses. The mcap was propelled by gains in the broader market, including small and midcap stocks - a trend dominant this year.
The general elections in April/May 2024 are expected to add volatility to the Indian markets, keeping investors on their toes.
The outcome of the general elections, the Morgan Stanley note says, has enough firepower to sway the markets on either side.
The brokerage believes the economic growth cycle is not fully priced in. It has revised upwards the earnings per share (EPS) estimate for Sensex.
Expenditure on new projects slowed down for the second quarter in a row amid an uncertain global environment and higher borrowing costs. There were new projects worth a cumulative Rs 3.26 trillion in the July-September period, according to data provided by project tracker Centre for Monitoring Indian Economy (CMIE). This figure is much less than Rs 4.39 trillion in the June quarter (Q1FY23) and Rs 8.46 trillion in the March quarter (Q4FY22).
The bull run in the Indian equity markets is intact, said analysts at Morgan Stanley in a recent note. They expect the S&P BSE Sensex to hit 80,000 levels by December 2023 in their bull-case scenario, to which they have assigned a 30 per cent probability. From the current level, this translates into an upside of nearly 29 per cent.
Ridham Desai, MD, Research, Morgan Stanley tells us what the industry has to offer for aspiring investment banking professionals.
Results for the quarter ended December showed how the actual results for many large companies turned out to be worse than analysts' estimates.
The only asset class which has given them positive real returns in the last five years is gold, says Ridham Desai, strategist and head of India Equity Research at Morgan Stanley India.
With growth rates slowing and global concerns not abating, the Street is increasingly becoming worried about rising stress levels for corporate India.
Indian markets started 2012 on a positive note. Ridham Desai, managing director and strategist and head of India equity research, Morgan Stanley, says, he expects a 15 per cent upside in the Sensex this year.
The India story is on a roll. The country's benchmark indices are on their way to touching historical highs, aided largely by inflows from foreign institutional investors. But Ridham Desai, managing director, Morgan Stanley (India), still thinks there's "some reticence" in FII participation.
Analysts are bullish on consumption and investment themes.
Many years during which monsoons were poor saw high returns, while normal or excess rainfall has also coincided with poor calendar year gains.
Terming the just-concluded fiscal as an "okay year", a panel of financial experts said though this fiscal would be a challenging one, the domestic equity markets could turn out to be a "star performer".
The current crisis in the euro zone will not create any major problems for India, but a 10-15 per cent correction in markets is not ruled out if it worsens, says Ridham Desai, managing director and head of equities at Morgan Stanley India.
The Indian equity market has once again demonstrated its high beta characteristic in bear markets. The fundamental underpinning to this high beta status in bear markets is India's dependence on global financial markets to fund its macro -- more than three-fourths of the flows into India come from portfolio sources (which are linked to global financial market outcomes) -- quite the opposite of the emerging markets average.
Morgan Stanley entered India in 1989 through an offshore fund --The India Magnum Fund. Ridham Desai, managing director and co-head (equity), has been with the firm since 1997. In an interview with Vandana, he speaks about the recent spike in the Indian stock market and the global recovery.
On the eve of the Budget, top foreign brokerage houses Morgan Stanley and JP Morgan were advising investors to stay away from the Indian stock markets, saying the risk factors involved in Indian equities are much higher.
Morgan Stanley said global factors are likely to remain a key influence on India's equity returns over the next one year.
Despite headwinds, it remains "structurally bullish" on India and expects the Sensex to scale up to the 70,000-mark by December 2022; 80,000 level in a bull-case scenario and hover around the 50,000-mark as a bear-case, the brokerage house said in a report.
In a bull-case scenario it sees the Sensex at 61,000 levels, while it's bear case scenario pegs the Sensex at 41,000 levels by December 2021.
Morgan Stanley attributes the strength in the domestic rally to local flows.
Global events will continue to be in the limelight, besides domestic policy.
Analysts caution a non-BJP government is not an impossible scenario. In case of a Modi-led coalition, they advise investors to focus on discretionary consumption, select private banks and financials, RIL, housing, and IT.
Portfolio returns, say analysts at Morgan Stanley, are more likely to be driven by bottom-up stock-picking rather than top-down macro forces.
Fiscal consolidation is keenly awaited.
Morgan Stanley says the Indian market's performance would depend on policy action.
Indian equities are no longer cheap vis-a-vis global markets, and only a short distance away from being the most expensive they have ever been.
These include increasing the public float in listed companies to 35 per cent from 25 per cent, increasing the minimum statutory limit for FPI investment in a firm from 24 per cent to the sectoral foreign investment, and lowering government holding in listed public sector undertakings.
Morgan Stanley says favourable factors will push Sensex to 32,500 level by December.
Morgan Stanley removed banking stocks from its model portfolio when it slashed its weighting on the sector by 500 basis points. Several foreign brokerages, such as UBS, JP Morgan, and Credit Suisse, of late, have also become less optimistic about banking stocks.
Coalition governments aren't necessarily a negative for the economy, though they can result in negative outcomes in the stock market if not already priced in before elections.
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