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Morgan Stanley expects Sensex to hit 42,000 by December end

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"Nifty could be looking to break 10,500-11,000 range to the upside, which it has respected since November 2018," the brokerage said in a report dated March 6, 2019.

Morgan Stanley expects Sensex to hit 42,000 by December end
The bull market in the Indian stock market, which began in March 2009, just completed its tenth year. This has been India’s longest and slowest bull market with a compound annual growth rate (CAGR) in returns of 16 percent. The BSE Midcap Index, however, has outperformed the BSE Sensex and NSE's Nifty 50 with a CAGR of 18 percent.
Going forward, Morgan Stanley expects the market to start pricing in a strong election outcome in the coming weeks causing Nifty to break its four-month range to the upside. "Nifty could be looking to break 10,500-11,000 range to the upside, which it has respected since November 2018," the brokerage said in a report dated March 6, 2019.
India's underperformance this year has been a result of rising oil prices and political uncertainty.
"The events of the past eight weeks on the political front including various pre-poll alliance formations, farmer subsidy scheme and the military action across the border may cause polarisation in the forthcoming general elections and increase the probability of a stronger government. Meanwhile, fundamentals appear to be at the start of a new up-cycle, whereas valuations are at mid-cycle. Growth is likely to move higher with PMIs in expansion zone, credit growth at multi-year highs, corporate revenue growth at almost 20-quarter high and corporate profits at a 25-year high," the Morgan Stanley added.
Recent newsflow on the pre-poll alliances create the prospects of a more polarised election outcome. In Morgan Stanley's base case scenario, election results may be close to call.
Here are the top three scenarios for 2019 by Morgan Stanley:
Base Case
In the brokerages' base case scenario (50 percent probability), the December 2019 target for S&P BSE Sensex is 42,000. They expect earnings growth of 21 percent year-on-year in 2019 and 24 percent in 2020.
Bull Case
For the bull case scenario (30 percent probability), the December 2019 target for Sensex is 47,000. This is a case with strong election results that are a single party has a clear majority and better than expected outcome on policy and global factors. They expect earnings growth of 29 percent year-on-year in 2019 and 26 percent in 2020.
Bear Case
For the bear case scenario, (20 percent probability), the December 2019 target for Sensex is 33,000. In this scenario, the globals conditions deteriorate and the market starts pricing in poor election outcome ( a hung parliament). They expect earnings growth of 16 percent year-on-year in 2019 and 22 percent in 2020.
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