September 2, 2015

Morgan Stanley sets Sensex 'bear case' level at 22.8K

Morgan Stanley has set a bear case Sensex target of 22,800 which is 10% lower from current levels. The US-based investment bank, however, has assigned just 10% probability for the 30-share blue chip index slipping to that level.

Morgan Stanley says Sensex could go that low if "policy response is tepid and, more crucially, global conditions deteriorate". Also, if FY16 and FY17 earnings growth is just 10% and 15% the market could see that kind of a downside.

Morgan Stanley's base case scenario (50% probability) is the index going to 28,800 by August 2016 - that's a 13% upside from the current levels. "Growth will slowly accelerate, and we expect Sensex earnings growth of 14.6% and 20.1% in FY16 and FY17, respectively.

Broad market earnings growth will likely be at 13% in FY16 and 15% in FY17. Morgan Stanley says that Indian market's further performance could depend on policy action.

"Outperformance since May makes relative valuations rich but until global low inflation persists this outperformance could continue if India's policy makers can transition from caring for macro stability to pursuing growth," Ridham Desai and Sheela Rathi, analysts at Morgan Stanley said in a note.

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