Anticipating no major jump in commodity prices and steady growth in the domestic economy, Morgan Stanley has predicted that the 30-stock BSE Sensex could touch 68,500 by end-December 2023. The global financial company said the above-mentioned levels for the broker's key benchmark index suggest the Street would trade at a trailing P/E multiple of 20.5x, ahead of the 25-year average of 20x. A premium higher than the historical average reflects greater confidence in medium-term growth.
Highlighting the reasons for such bullish prediction on Sensex, Morgan Stanley research report said, "We believe that commodity prices especially oil and fertilizers (either due to China's reopening or Ukraine's conflict), there is no major move in stable domestic growth as per our forecasts." US not hit by recession, RBI exits at 6.5% repo and government policy remains supportive through strong infrastructure spending. Sensex gains 22% annually through F2025E."
Morgan Stanley believes that every market goes through ups and downs and the above forecast is for a typical market. In case of bulls, Morgan Stanley believes that the Sensex may go up to 80,000 in 2023, while in case of bears, BSE Sensex may touch 52,000 levels on the downside.
On Sensex target in case of bulls, Morgan Stanley says, "In addition to the above, India is included in global bond indices, resulting in inflows of nearly US$ 20 billion in 12 months, as markets begin pricing majority government in 2024." and the equity limit for retirement funds has been raised to 25%. Income growth compared to F2022-25E is 25% annually.
What if commodity prices bounce back, says Morgan Stanley, "Commodity prices rise, and RBI takes repo rate above 7% to protect macro stability, A prolonged slowdown in the developed world could hurt India's growth." Pulls down, market begins to believe India will vote in minority government in 2024 and sharp fall in stocks will hit domestic inflows. Sensex gains 18% annually on F2022-25E, but equity multiples to reflect poor macro conditions Let's de-rate."
Morgan Stanley believes that the above targets with respect to Sensex could be made possible through better performance of non-banking stocks, while the financial company expected a correction in consumer stocks following a pick-up in demand for consumer goods. Bulls may also see buying interest in industrial stocks on strong government capex.
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