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Morgan Stanley scales back Sensex June 2020 target to 40,000

The research firm also cut Sensex’s EPS growth estimate for this financial year to 13% from 19%.

ET Bureau|
Updated: Sep 07, 2019, 09.11 AM IST
Mumbai: Morgan Stanley has lowered its target for the Sensex to 40,000 by June next year from 45,000 that it had set soon after the Narendra Modi-led BJP swept the national elections this May.

The global research firm has also cut Sensex’s earnings per share growth estimate for this financial year to 13% from 19%, citing weaker global backdrop.

India is a marginal overweight in Morgan Stanley’s Global Emerging Market model portfolio. The firm has a bull case of 47,000 on the Sensex based on the premise that the government will undertake further policy action and global growth will improve. Its bear case is that Sensex could slip to 31,000 if there is a global recession.

“Reflecting a weaker global backdrop as well as growing reflexivity risks from share prices to fundamentals, we cut our earnings estimates for 2020 (FY20) and our Jun-20 index target,” Morgan Stanley’s Ridham Desai and Sheela Rathi said in a note on Thursday.

The move is in line with the stance taken by other global players. In recent weeks, Nomura has cut March 2020 Nifty target to 11,880 from 12,900, and Citi has cut Sensex target to 39,000 from 39,600.

The government has in recent weeks announced a slew of measures to revive the economy as well as the stock markets. Yet, market sentiment continues to be weak as global and local growth is slowing, and US-China trade tensions are continuing.

The Sensex ended up 337.35 points or 0.9% at 36,981.77 on Friday. The 30-stock index is 8 percent off its record high of 40,312.07 hit in early June.

Morgan Stanley said earnings growth in India is likely to be better in the coming two years than in the previous few years, but the pace of earnings growth is likely to be less than its forecast.

The research firm said its indicators suggest that equity markets are likely to improve after weak performance in the last few months due to valuation support. However, returns are not likely to see a V-shaped upturn, given the absence of a strong growth cycle and headwinds from global factors.

Morgan Stanley has added more mid-caps to its focus list including Container Corporation, Oberoi Realty and Gujarat Gas. The brokerage believes that the broad market looks attractive for patient investors. It has also closed out its underweight position in communication services and utilities by trimming some of its overweight in financials.

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