Growth to pick up in Q2; Sensex target at 34k for June 2018:

Maintaining a constructive view on India's macro outlook, global financial services firm Morgan Stanley today said economic growth is likely to pick up "meaningfully" from second quarter of the current year and has set a new BSE Sensex target of 34,000 for June 2018.
"We believe that the roadblocks to growth are dissipating and growth will accelerate meaningfully from second quarter (April-June) 2017 onwards," Morgan Stanley chief Asia economist Chetan Ahya told reporters here.
"Initially, the recovery will still be driven by consumption, public capex, and exports, but as demand picks up, capacity utilisation rates will rise. This, coupled with improving corporate balance sheet fundamentals will bring about a recovery in private capex," he added.

According to Ahya, estimates private capital expenditure (capex) to recover by first quarter of 2018. "The economy will be firing on all cylinders then," he said.
At the same time, Morgan Stanley has set a new BSE Sensex target 34,000 for June 2018 and has predicted more upsidesin next 3-5 years in the stock markets.
"Our new BSE Sensex target of 34,000 for June 2018 compares with our previous target of 33,000 for Dec 2017 representing an upside of 10 per cent. The bull case offers 26 per cent upside whereas in our bear case the index could fall 19 per cent," said Morgan Stanley head of equity research Ridham Desai.

While noting that domestic markets would follow global corrections, Desai said large cap stocks are likely to outperform mid-cap securities during the current year.

"Our sentiment indicator, breadth indicator and flows are pointing to a tactical correction in the market. If a global correction ensues, the index could easily give up 5-7 per cent with possibly more damage to the broader market," he added.
On rate-cut, Ahya said RBI will stay neutral for now and hike in the second half of 2018.
"As the economy enters a unfledged recovery by first quarter of 2018, we expect core inflation would start to pick up," he said.

"Moreover, the Fed would also continue to raise rates (twice more in 2017 and four more times in 2018). This confluence of domestic and global factors would mean that RBI would gradually shift its tone towards hawkish, eventually paving the way for a rate hike in the second half of calendar year 2018," he said.
As the economy is likely to see full-fledged recovery by first quarter of next year, implementation of GST, due for July 1 roll out this year, may cause a drag on a growth in the near-term.
"The strength of exports growth is the key external risk. Domestically, in the near-term the key risks are if the impact of the currency replacement program lingers for longer than we expect or that the implementation of the GST causes a drag on growth," Ahya said.

"Beyond the near term, issues such as the resolution of banking system issues (non-performing loans, capital adequacy of state-owned banks) and fiscal consolidation progress would influence the growth trajectory. We view the risks to 2017 as balanced but think that risks are skewed to the downside for 2018," he added.