Morgan Stanley says Sensex at 45,000, Nifty at 13,500 by June 2020

Morgan Stanley also expects the RBI to be more accommodative and the economy to come out of its soft patch of the past few months

New Delhi: Despite the 2019 election outcome-driven rally that took the Bombay Stock Exchange (BSE) and the Nifty 50 index above the 40,000 and 12,000 levels on Thursday, there is still scope for markets to move up even further. Morgan Stanley said that it expects Sensex to rise up to 45,000 by June 2020.

"India seems to be voting in a majority government for another term. This likely continuity in administration is source of comfort for stocks due to accompanying policy predictability. We expect some shifts in the policy regime. Sensex target is at 45,000 for Jun 2020," wrote Ridham Desai, head of India research and India equity strategist at Morgan Stanley in a co-authored report with Sheela Rathi, Upasana Chachra and Avni Jain.

RBI is expected to be more accommodative

The focus of the market is now expected to shift to the growth cycle, on which they are constructive. With respect to economy and policy front, Morgan Stanley expects the Reserve Bank of India (RBI) to be more accommodative and the economy to come out of its soft patch of the past few months.

The ongoing trends

According to Morgan Stanley, the ongoing trends suggest that there will be continuity in administration. They added that earnings could be heading into a new cycle and saw domestic flows returning with strength. However, despite all this, key risks to equities remain in the form of oil prices, US Fed rate action, trade tension between the US and China, among others.

"We expect the inflation framework (low food prices and positive real rates), fiscal consolidation, infrastructure spending, FDI focus and strong external affairs policies to continue. The new administration may bring some changes such as increasing cash transfers to poor people (hopefully subsuming existing subsidies), more emphasis on portfolio flows (which lost out in the previous five years), focus on India's external trade and social/constitutional reforms (like Article 370). Legislation is a consensus driven activity given that the NDA remains in minority in the Upper House, for now," the Morgan Stanley note says.

"We are overweight on domestic cyclicals, both consumer and industrials, as well as financials, and underweight defensive sectors including healthcare and technology. We are overweight India in our emerging market model portfolio," analysts led by Desai wrote in the report.