Morgan Stanley has presented three scenarios for the BSE Sensex with varying probabilities, each influencing the index's trajectory and reflecting distinct economic circumstances.
In the Base case, which holds a 50% probability, the projected BSE Sensex target stands at 74,000. This projection is based on several factors: continuity in governance with a majority mandate, robust domestic growth, the absence of a prolonged US recession, and favorable oil prices.
The assumption includes supportive government policies and a gradual transition by the Reserve Bank of India (RBI) from its current hold stance. Under this scenario, Sensex earnings are anticipated to compound annually at 21.5% through F2026E.
The Bull case, with a 30% probability, envisions the BSE Sensex reaching 86,000. This scenario builds upon the Base case elements and adds further favorable conditions: a dip in oil prices to the $70s or lower, resulting in reduced domestic inflation and more aggressive rate cuts by the RBI. Additionally, a renewal of the US growth cycle with global market responses and unexpected positive bond flows are anticipated. Earnings growth is projected to compound annually at 24% over F2023-26E.
Conversely, the Bear case, holding a 20% probability, anticipates the BSE Sensex at 51,000. This scenario is contingent upon several adverse developments: India's elections leading to an unclear mandate and a change in government, a surge in oil prices beyond $110/barrel, resulting in RBI tightening measures to safeguard macro stability, and a potential US recession affecting global growth. In this scenario, Sensex earnings would compound annually at 15.5% over F2023-25E, with notably slower growth in F2025 and equity multiples potentially de-rating due to unfavorable macroeconomic conditions.
These distinct scenarios offer a comprehensive outlook, emphasizing the importance of varied economic factors and their potential impact on the BSE Sensex trajectory, providing investors with a range of potential outcomes to consider.
(With Agency Inputs)
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