Why Morgan Stanley has revised the target of Sensex to 50,000 by Dec 21

It’s been a while that major financial institutions who have strong global presence and international market veterans seen getting optimist on the growth story of Indian economy. Indian investors have been delighted as Sensex has received a target of 50,000 by December 2021 and it is worth-mentioning that the projections have come from mammoth brokerage house ‘Morgan Stanley’. The Morgan Stanley has upgraded the target for Sensex to a magical figure of 50,000 by the end of December 20201 from its early projection of 37,300 by June 2021 on the grounds of upcoming growth in the Indian macros. After considering the robust rally in the Indian equity market since the lowest lows in March as indices have gained more than 70%, Goldman Sachs and Nomura has revised the target of Nifty by 14,100 and 13,640 by December 2021 respectively and now Morgan Stanley has joined the elite group.

The ‘Overweight’ stance from Morgan Stanley banks upon massive recovery in Covid-19 cases and coming growth cycle which has yet not priced in. The global brokerage firm has increased FY21, FY22, and FY23 earnings per share (EPS) estimates for the 30-stock bundle by 15%, 10%, and 9%, respectively. In a statement from Morgan Stanley “Indian government policy action is beating the expectations, growth indicators are coming strong, companies are picking up their operations and interest rates are expected to remain in negative territory for several months.”

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“Return correlations across stocks with the equity market have risen to levels from where they tend to mean-revert. We expect domestic cyclicals to outperform exports, with rate-sensitives and consumers outperforming whereas energy should underperform,” said Morgan Stanley.

Factors that will drive the rally to attain the revised targets

  1. Biden’s win has put India in a better position: The presidential period of Trump has been one of the most volatile duration and appointment of Biden for highest chair in U.S. has not only reduced the volatility but has also delighted the Indian economy. He has clearly stated that “Partnership of U.S. and India is defining relationship of 21st century and he is planning to strengthen more. Biden is expected to veto the work permit of the spouses of H-1B visas, which has affected the Indian families in U.S. earlier. Moreover, he will remove the country quota of green cards which may help the migrants in U.S.
  2. Grudge with China has put India in a sweet spot: After the spread of Covid-19, many Asian countries have seen shifting their imports from China to other countries. This would energize the outsourcing of inputs and derive more clientage to Indian manufacturers. Moreover, the rising environment concerns and government policies taken by Chinese government will restrict their output and make the Indian manufacturing industry most promising one.
  3. Indian companies have tackled the Covid-19 situation efficiently: It was a challenge for the Indian producers to contain the productivity keeping in mind that Covid-19 pandemic is going to stay further. The companies have managed to maintain their output keeping their manufacturing facilities Covid-proof. The Work from Home facility has not led the operations get hampered, which has showcase the strength and maturity of Indian manufacturers to alter themselves as per the requirement.

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