The S&P BSE Sensex has come off the all-time high level of 38,989.65 registered on August 29, 2018, and has since declined nearly 6 per cent. Global brokerage Morgan Stanley expects the Sensex to hit 42,000 by December this year. The stock markets witnessed a selloff from all-time high levels in the aftermath of the credit crisis that surfaced after Investment Leasing & Financial Services (IL&FS) defaulted on its various debt obligations, say analysts. Rising oil prices and political uncertainty owing to general elections later in in the year have also added to relative underperformance by the Indian equity benchmarks, Morgan Stanley said in its report.
“We think India’s underperformance this year has been a result of rising oil prices and political uncertainty. Both these issues may have hit their peak in terms of negativity,” Morgan Stanley noted.
It also said that the fundamentals of Indian markets are indicating the start of a new up-cycle while the valuations are at a mid-cycle.
“Fundamentals appear to be at the start of a new up-cycle, whereas valuations are at mid-cycle. Growth is likely moving higher with PMIs in clear expansion zone, credit growth at multi-year highs, corporate revenue growth at almost a 20-quarter high and corporate profits at 25–quarter highs,” the note said.
Morgan Stanley added that the corporate earnings were better than expected in December quarter and a new profit cycle may be underway.
“The aggregate corporate balance sheet is improving. The recent earnings season was a tad better than expected and suggested that a new profit cycle may be underway, Morgan Stanley said.
Under the base case scenario, which has a 50 per cent probability of occurrence according to Morgan Stanley, the Sensex is likely to hit 42,000 by December. In a bull case, which has a 30 per cent chance of happening, Sensex will hit 47,000 if the market starts believing in a strong election result wherein one party has a clear majority.