Top

Morgan Stanley stays bullish on Sensex for 5 years

The market, according to the research house, is pricing in about a 10 per cent compounded annual growth rate (CAGR) in profits for 2016-2020.

Mumbai: Global financial services firm Morgan Stanley said that the Indian equity markets are likely to deliver positive returns over the next 3-5 years as the markets are yet to factor in the possibility of a multi-year earnings growth cycle.

“Corporate India is sending positive signals via higher dividends and, while the market expects higher growth for 2016-17, a multi-year earnings cycle may not be priced in – so there may be upside potential for three- to five-year investors,” said Ridham Desai and Sheela Rathi of Morgan Stanley.

The market, according to the research house, is pricing in about a 10 per cent compounded annual growth rate (CAGR) in profits for 2016-2020, which they think is conservative.

Morgan Stanley is currently overweight on India by 200 basis points, next only to Taiwan in its Emerging Market (EM) universe as it expects an upward revision in India Inc’s earnings growth, a factor that drives stock prices up. The research house noted that India is coming out of its deepest GDP slowdown since the Balance of Payment (BoP) crisis in the early 1990’s. The trough for this cycle was in 2013 and since then real growth has been improving. While India Inc’s earnings have fared poorly over the past five years, Morgan Stanley said it was still better than emerging market average in dollar terms.

“This is more a function of how bad the EM earnings environment has been. Thus, on a relative basis India has outperformed emerging markets, especially after the summer of 2013 when India's macro stability improved. The comparison of return on equity (ROE) looks even better for India, with the relative ROE almost at multi-year highs. Given the earnings outlook that we have for India versus emerging markets, we expect India to outperform EMs,” the research house said.

The report expects the broader market earnings growth to accelerate from minus (-12) per cent in FY16 to 12 per cent in FY17 and 19 per cent in FY18 – a compounded annual growth rate of 16 per cent.

( Source : Deccan Chronicle. )
Next Story