Latest Reports of Morgan Stanley state that Indian equities are likely to exceed their emerging market (EM) peers in the second half of 2021.
Morgan Stanley sees the Sensex at 61,000 levels in a bull-case scenario (30% probability) with an upside of around 22 per cent from the present-day levels, while it’s a bear case scenario the Sensex at 41,000 levels (20% probability) by December 2021.
However, the Brokerage and Research has kept its December 2021 target for the Sensex unaffected at 55,000 levels (50% probability: Base Case) with an upside of around 10 per cent from the present-day levels.
Ridham Desai in the report, which was co-authored with Sheela Rathi and Nayant Parekh, wrote, “Our unchanged BSE Sensex target of 55,000. This level implies that the BSE Sensex would trade at a forward P/E multiple of 17.5x and a trailing P/E of 21.2, ahead of the 25-year average of 19.7x. This premium over the historical average reflects higher confidence in the medium-term growth cycle in India. We are overweight on India in a global emerging markets (GEMs) context.” Ridham Desai is the head of India research and India equity strategist at Morgan Stanley.
The Morgan Stanley report stated, “Our set of 16 leading indicators and six coincident or lagging indicators suggest an improving market outlook for the second half of 2021. This is a stock-picker’s market, with ample alpha opportunity underscored by a falling correlation of returns across stocks. Our pecking order: domestic cyclicals, rate sensitives, global cyclicals, defensive exporters and mid-caps, large caps, small caps”.
It further explained, “India faces two opposing challenges – immediate shortages of vaccine supply and a medium-term problem of convincing people to be vaccinated. At the margin, the equity market will be assessing the shift in vaccine supply as a key input. Our earnings outlooks for FY22 and FY23 are unchanged from where we were at the start of the year”.
It also stated that the second wave of Covid-19 infections may have peaked in the country and the markets are now looking at ways of quickly bouncing up with the expectation of fall in cases, in addition to ramping up of the vaccination drive. While the corporate earnings are likely to be affected due to the lockdowns and mobility curbs owing to the Covid-19 surge, markets are likely to look through this disruption.
The analysts have noticed that the overall consumption might hurt with the possibility of a further extension in lockdown, now with a scenario where the Covid infections have reached rural India as well.
Shubhada Rao, founder, QuantEco Research, wrote in a co-authored note with Yuvika Singhal and Vivek Kumar, “Rural demand losing its vigour amidst the proliferation of virus in rural centres. A first cut comparison of the response of high-frequency consumption-oriented indicators during the first lockdown with the early trends of the ongoing lockdown, suggests that in contrast to a V-shaped recovery in FY21, consumption redux could look more U-shaped in FY22.”