Sensex may touch 61,000 by December 2021: Morgan Stanley

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Giving a thumbs-up to the budget presented by Nirmala Sitharaman, global brokerage firm Morgan Stanley has revised its year-end target for Sensex to 61,000.

Equity market sentiment has been buoyed by the lack of any new income tax, the push for growth through higher infrastructure spending, and a refreshed approach to monetisation of government assets including proposed privatization of two public sector banks and one insurance firm, the brokerage firm said in a note.

Post-budget, Sensex has been on a bull.

“Budget outlines measures to make the financial sector more robust. If implemented correctly, the budget could aid an increase in the share of corporate profits in GDP,” the note added.

Bull, Base & Bear case

For the bull case scenario, Morgan Stanley has a target of 61,000 for Sensex by December 2021. This assumes that the virus ebbs completely, recovery in growth is sustained, and global stimulus supports asset prices. The government delivers strong policy including infrastructure creation, ease of doing business, and fiscal consolidation.

The US dollar enters a sustained bear market, accelerating flows into EM including India. Earnings growth reaches 37% in FY2022.

While for the base case the brokerage pegs Sensex at 55,000 by December 2021 and excepts stability in the current virus situation and a recovery in the economy per our forecasts. Sensex earnings to rise by 32% in FY2022. The government is not required to launch a fresh fiscal program thanks to the ongoing recovery in the economy but continues to pursue both administrative and legislative reforms.

Whereas in the bear case scenario it thinks that the Sensex will fall to 41,000 if the virus resurges and lingers well into 2H 2021, and growth falters. India fails to deliver an adequate policy response, leading to losses in the financial system. Sensex earnings grow 28% in FY2022 but equity multiples de-rate to reflect poor macro conditions.

Ridham Desai and Sheela Rathi of Morgan Stanley prefer domestic cyclicals over exporters, rate-sensitives and consumers over energy and SMIDs (small and mid-caps) over large caps.

“Budget proposals may promote a new private investment cycle, with a recovery in domestic equity flows and overall growth,” they said.