Is it true that Morgan Stanley has set a Sensex target of 70,000 in the next year?

Actually, Morgan Stanley expects the markets to pause in according to a recent note. However, its targets are still aggressive in the sense that it is targeting 70,000 on the Sensex in a normal scenario and 80,000 in a best case scenario. That is a return of 17% from the current levels. Interestingly, Morgan Stanley had recently downgraded India to equal-weight in their global emerging markets country portfolio from over-weight currently.

Morgan has held on to the view that relative valuations are still at the higher end of the historical range and that there was just too much of exuberance among small- and mid-cap stocks. Morgan Stanley has highlighted some risk factors for India including the US rate cycle, rising oil prices, key state level elections, likely worsening of the third wave of Covid wave, spike in repo rates, strong historical returns combined with fairly rich valuations.

Morgan Stanley has given 3 scenarios,. It has a assigned a 50% probability for Sensex to scale 70,000 by the end of 2022, a 30% probability for Sensex 80,000 and a 20% probability bear case of Sensex at 50,000. Morgan is very bullish on India entering a new profit cycle on the back of favourable government policies. However, Morgan has warned that due to the sharp rally in the past, the index returns may trail index earnings for some time.

The reason Morgan Stanley has projected 70,000 for the Sensex is that if GDP grows at 10% nominally and hits 3.5% profit share in GDP, then earnings could compound at 25-30% for a sustained period of time. In short, while the pace of the rally may slow a bit, the trend is still upwards. That is message coming from the Morgan Stanley Note. It is positive on clean energy, defence indigenisation, life insurance, digital transformation, e-commerce etc.