Global financial major Morgan Stanley expects the Indian equity market to outperform the global markets over the next 12-18 months based on factors like earnings upgrade along with possible rate cuts and peaking of the corporate debt cycle.
“The corporate debt cycle has peaked and we can see earnings upgrades coming as well. Barring banks, this was the best earnings quarter (January-March) we have seen for India Inc since the Narendra Modi government came to power two years back,” said Ridham Desai, Head of India Equity Research and India Equity Strategist, Morgan Stanley.
Speaking on the sidelines of the Morgan Stanley 18th Annual India Summit, Mr. Desai said he is not bullish on global equities due to the ongoing growth concerns and expects some correction over the next four to six months during which India could also see some amount of selling.
The financial firm has a ‘bull case’ target (when factors favour the market) of 30,000 for the benchmark Sensex and a ‘base case’ (when conditions are unfavourable) target of 27,500. The 30-share Sensex is currently trading at 26,713.93 and is up 2.28 per cent in the current calendar year.
Morgan Stanley expects the passage of the goods & services tax (GST) Bill later this year and also expects the Reserve Bank of India to cut rates a “couple of times” in the current financial year.
“We expect the GST Bill to be passed not because the Bharatiya Janata Party won more seats but because the Congress has lost,” said Mr. Desai, hinting that non-Congress parties are likely to help the BJP pass the Bill that has been in limbo for years.
Among the sectors, Morgan Stanley is bullish on consumer discretionary stocks and expects the segment to do well over the next 12-18 months. “Discretionary consumption spending is likely to rise which makes us constructive on retail banks and consumer discretionary including auto,” added Mr. Desai who has been with Morgan Stanley for nearly 20 years. On the issue of public sector banks, however, he said the worst is not over yet and earnings growth would remain under pressure for another two to three quarters.
On the global macro-economic front, concerns related to reversal in demographics, high level of debt-to-GDP ratio and persistent deflation remain that could impact markets worldwide, said Chetan Ahya, Chief Asia Economist, Morgan Stanley.
“In India, however, demographics continue to improve and the debt-to-GDP ratio at 140 per cent is better than most Asian economies that have the ratio in excess of 200 per cent,” said Mr. Ahya.
Worry about reversal in demographics,
high debt-to-GDP ratio and persistent deflation remain
Published - June 02, 2016 12:00 am IST
