Morgan Stanley Sees Sensex Hit 50,000 In 2021

After a sharp recovery in equities last week, global brokerage firms have started raising their targets for the Indian markets, reiterating their bullish stance.

Morgan Stanley has upgraded its target for Sensex to 50,000 by December 2021 from an earlier target of 37,300 for June 2021. It believes that the coming growth cycle is not fully priced in and that there is more upside to the index, with an overweight rating on India.

The global brokerage firm has also increased FY21, FY22, and FY23 earnings per share (EPS) estimates for the BSE Sensex by 15 percent, 10 percent, and 9 percent, respectively indicating between 6 percent and 7 percent above consensus estimates. The target for Sensex implies that the index would trade at a forward price to earnings (PE) multiple of 16 times.

"COVID-19 infections appear to have peaked, high-frequency growth indicators are coming in strong, government policy action is beating expectations, and Indian companies are picking up activity through the pandemic. Thus, we expect growth to surprise on the upside, rates trough to be behind, and real rates to remain in negative territory for several months," Morgan Stanley's note said on 15 November.

The brokerage has its target for Sensex placed at 59,000 in a bull case scenario where the virus situation improves, recovery in growth is sustained, and global stimulus supports asset prices. On the other hand, in a bear case scenario, it sees Sensex at 37,000 if the virus issue lingers well into 2021, and growth falters while India fails to deliver an adequate policy response, leading to losses in the financial system.

Overall, Morgan Stanley expects the small-caps and mid-caps to beat the narrow indices or large caps in 2021 as it feels that concentration of market cap and profits may have peaked with the return of the growth cycle.