“We assume continuity in a government with a majority mandate, robust domestic growth, the US does not slip into a protracted recession and benign oil prices. Government policy remains supportive, and the RBI executes a calibrated exit from its current hold stance. Sensex earnings compound 21.5% annually through F2026E,” Morgan Stanley said.
The base case scenario of Sensex hitting 74,000 mark has a 50% probability and suggests that the BSE Sensex will trade at a trailing P/E multiple of 24.7x, ahead of the 25-year average of 20x.
In the bear case, the index may fall to 51,000 if elections deliver an unclear mandate with a change in government, oil prices surge past US$110/barrel, the RBI ends up tightening to protect macro stability and a US recession leads global growth lower.
Morgan Stanley’s bull case scenario with a 30% probability shows that the index can zoom as much as 86,000 if oil prices dip into the $70s or below resulting in lower domestic inflation and deeper rate cuts from the RBI, the US growth cycle renews with global share prices responding with a strong up move and bond flows surprise to the upside.
Although early 2024 could be marked by high volatility for Indian equities amid the general elections, the global investment bank holds its positive stance and sees it outperforming not only China but many other emerging market peers in the following year.
India has delivered strong relative earnings, sustaining the strong market outperformance seen in 2022, while macro-fundamentals have withstood tightening financial conditions in the US. “India is set to establish secular economic and earnings outperformance vs EM,” the investment bank said in its 2024 outlook report.
Stocks in Focus List
Morgan Stanley has replaced Titan and SBI Cards with Avenue Supermart and Reliance Industries in its focus list. Other stocks include Nykaa, Maruti Suzuki, ICICI Bank, SBI Life Insurance, HAL, L&T, Infosys and UltraTech Cement.
“We are overweight on Consumer Discretionary, Industrials, Financials, and Technology and Underweight all other sectors,” the brokerage said in a report.
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