Despite the recent selloff in Indian markets, Morgan Stanley maintains its base case scenario of 45,000 on the Sensex by June 2020, and a bull case of 50,000.
At a time when there is gloom over the market and the larger economy, Morgan Stanley has some good news for investors. The global investment bank has said that markets could be nearing a bottom.
“We are getting to a bottom in share prices, as our valuation and sentiment indicators suggest, but risks remain on the horizon for the real economy and a slowing global economy,” Morgan Stanley said in a report.
The risk-to-reward ratio favours buying equities, but a V-shaped recovery in stocks depends on the actions of policymakers, says the August 6 report. Investors with a bit of patience will likely be rewarded well in the next 12 months.
The S&P BSE Sensex has fallen around 9 percent from its record high of 40,312.07 touched in early June. The market has continued to head south, weighed down by budget proposal of higher tax on the super rich, selling by foreign investors, slowdown in growth and escalating trade war between the US and China.
Despite the selloff, Morgan Stanley maintains its base-case scenario of 45,000 on the Sensex by June 2020, and a bull-case of 50,000. Its bear case possibility sees the Sensex at 35,000 by June 2020.
“Indian equities look attractive in a relative context amid subdued oil prices, global trade tensions and better relative valuations in what is a low-return world,” says the note.
It, however, says policy action is still needed to protect India’s relative performance, which has sunk since the budget was presented on July 5.
From a portfolio perspective, Morgan Stanley likes financials, consumer discretionary and industrials, both large-and midcaps.
Policymakers could turn to measures such as strategic divestments of public-sector companies, recapitalisation of public-sector banks, trade deal with the US and other countries, rationalisation of GST rates, a new Direct Tax Code, infrastructure spending and fiscal prudence, and a moratorium on higher taxation for FPI trusts, Morgan Stanley says.
Bajaj Auto, M&M, Maruti Suzuki, Dabur, United Spirits, SBI, HDFC, Ashok Leyland, InterGlobe Aviation, L&T, Asian Paints and Sun Pharma are among the top 20 stocks on Morgan Stanley’s focus list.
