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INDIA-MARKET-SENSEX-TRADE
Sensex may trade at 36,000 by Jun 2019 on poor poll outcome: Report
Mumbai, Jul 23, 2018 (BSS/PTI) – Global investment bank Morgan Stanley sees
the Sensex trading flat at around 36,000 by June 2019 if the general
elections throw up a weak outcome, but cruising to 44,000 if the poll result
is strong.
Last week, the Sensex had hit an all-time high of 36,548.41, while the
broader Nifty also reclaimed the 11,000-mark, touching a high of 11,078.30.
This was the highest closing since January 31, when it had ended at
11,027.70.
“The domestic stocks are jostling weak emerging markets, rising rates,
higher oil prices, an election year and relatively rich mid-cap valuations.
The large-cap index has support from an improving growth cycle, strong macro
stability and local appetite for equities,” Morgan Stanley said in a weekend
note.
In a bear case scenario, which has a 50 per cent probability, the Sensex
may trade at 36,000 by June 2019, which is under-16 times the one-year
forward P/E, and below historical averages, the report warned and said in
this scenario, earnings growth will be 5 per cent in FY18, 23 per cent in
FY19 and 24 per cent in FY20.
But in a bull case scenario, which has a probability of 30 per cent, the
report sees the Sensex hitting the 44,000-level by June 2019, largely led by
better-than-expected poll outcomes, most notably on policy and global
factors.
“The market starts believing in a strong election result as well, and the
earnings growth will accelerate to 29 per cent in FY19 and 26 per cent in
FY20,” the report said.
The nation would have a new Parliament by mid-May next year if the polls
are held on time. Even though there are talks that the government may advance
the polls to December-January.
The report titled ‘India Equity Strategy’ highlighted six factors that are
favouring the domestic markets and six which are against.
Listing out the factors that are favouring Dalal Street, the brokerage
said strong macro stability backed by a central bank that is committed to
keeping real rates positive, a steepening of the yield curve that is at post-
2010 highs now, GDP accelerating relative to other emerging markets and
strong domestic flows, currently averaging around USD 2-2.5 billion a month
are in a structural uptrend now.
The factors working against the markets are rising crude prices, upward
pressure on inflation from MSP hikes making sure that more rate hikes are
coming, the election cycle, which brings its own set of uncertainties and
relatively rich mid-cap valuations.
The global investment bank prefers large caps over midcaps. On the
sectoral front, it votes for private sector banks, rising discretionary
spends, industrials and domestic materials, and keeps out healthcare,
staples, utilities, global materials and energy.
BSS/PTI/HR/1020