Sensex may climb to 42,000 by end of 2019, says Morgan Stanley

Influential brokerage Morgan Stanley expects Sensex to climb to 42,000 by the end of next year. The target implies an 18 per cent upside for the market from current levels in local currency terms. The brokerage expects the rupee to gain next year and therefore the market returns in dollar terms will be around 25 per cent, it said the index on Wednesday was trading at 35,690.

“After a volatile 2018, on balance equities could be poised for better returns in 2019 with the caveat that the Indian electorate does not deliver a shock verdict in the forthcoming 2019 elections by delivering a fragmented coalition government,” the brokerage said in a note today, titled ‘2019 Outlook: Odds in Favor of Equities’.

The brokerage said it is overweight on the GARP theme—growth at a reasonable price.  “We like GARP stocks among banks, discretionary consumption and Industrials – both large and mid-caps,” it said. Morgan Stanley is underweight on consumer staples, technology, healthcare, materials and utilities. 

Morgan Stanley said market performance will broaden next year and hence it is bullish on mid-caps where the forward growth is not reflecting share price performance. In 2018, the mid and small-cap stocks have hugely underperformed the large-caps.

“Fundamentals (both macro and corporate) appear to be at the start of a new up cycle, valuations are at mid cycle and market sentiment or psychology looks depressed. On balance, equity shares appear to offer more upside than downside,” the note authored by Morgan Stanley’s equity strategist Ridham Desai and Sheela Rathi states.