Morgan Stanley raises Sensex target

Morgan Stanley India in its latest report has upped June 17 BSE Sensex base case to 30,000. The earlier estimate for the same period was 26,000.

Considering the bull run in the benchmark indices, analysts Ridham Desai and Sheela Rathi feel confident that the BSE Sensex will hit 30,000 by June 2017 thus reassuring India's position as one of the top picks in the emerging equities.

On Wednesday, the BSE Sensex ended at 27,916, which is already an upside of 7.3 per cent from Morgan Stanley's previous target of 26,000.

Further, the report maintained cautioned on global equities, where the analysts expect a downside in the coming months.

According to the report — Growth Oasis, one of the reasons for the bullishness is the turning in the economic growth cycle. Ridham Desai, equity strategist with Morgan Stanley says: "We are forecasting 16 per cent and 14 per cent CAGR in earnings for the BSE Sensex and the broad market, respectively, over the next two years."

The relatively rich multiples' estimate as per the analysts is around 18 times one-year forward, which reflects a belief in India's superior medium-term growth story, a shift in macro funding from FPI to FDI and India's improved terms of trade.

On interest rates, Desai says: "We expect real rates to remain positive driven by interest rates rather than by deflation - one of the keys to India's rich relative equity multiples."

The rally in the domestic markets is, however, also well supported by global rally. But the analysts at Morgan Stanley would like to attribute the strength in the domestic rally to more local factors.

"Indian equities appear to be seeing strong boost from rising domestic saving in equities," says Desai.

The sentiment is buoyant; however, as per the analysts, factors other than global sell off that could pose a risk to the positive sentiment could be the up move in crude oil prices, low rainfall, and lack of SOE bank recap.