While the Indian markets are continuously rising to make new all-time highs almost day-after-day, some investors have begun questioning valuations and sustainability of the rally. Morgan Stanley is not among those. The research and brokerage firm’s India Managing Director Ridham Desai sees the benchmark NSE Nifty more than tripling to hit 30,000 points in five years from now, effectively growing at a CAGR of over 25%.
Renewed consumption, greatly improved exports and infrastructure spending by the government will lead to capital expenditure by the private sector recovering in the next 12 months, Ridham Desai said at an investor meet this week. The projected jaw-dropping growth is not unprecedented, Ridham Desai said, adding: “If you remember between 2003-2007 Nifty earnings compounded at 39 percent and the index was up seven-fold, we expect earnings to compound by 20 percent in the next five years which could take the index towards 30,000. These are very modest estimates.”
On Nifty 50’s journey to triple the investor returns, Morgan Stanley remains bullish on information technology stocks, and advises staying away from pharmaceutical counters. Here are a few highlights of the insights shared at the Morgan Stanley India Summit:
- GST: Ridham Desai said the dust on India’s most sweeping tax reform will settle down in a quarter or so. He also said that the government is very cautious about interest rates. Though Government is keen on not missing the revenue target, they are still not aware of the compliance effort that GST will take.
- Domestic stocks: While talking about his preference over equities, Ridham Desai said Morgan Stanley prefers domestic companies’ stocks over international ones.
- Pharmaceutical vs Information Technology stocks: Pharma sector has structural problem and valuations are still not as low as those for Information Technology stocks. IT stocks remain Morgan Stanley’s favourites.
- Real Estate: Ridham Desai said that the things are gradually improving in the realty sector. Though he believes that the demand may not be as high as it was long back between 2005-2012, as there are lot of inventories piled up. However, it would grow over the period of time.
- Jobs: Ridham Desai also believes that the job crisis will be over once the revenue growth increases. As of now, the revenue growth is at around 12 percent and margins have just started to pick up. Hence, as companies profits grow, corporate sector will start putting in more money in hiring people.