After rising to newer highs day after day and breaching some major milestones this year, India’s stock markets are passing through some turbulent times with Sensex and Nifty on a losing spree since last Friday on account of heavy sell-off in blue-chip stocks following the exodus of foreign institutional investors. While Sensex has lost over 1,000 points from Thursday’s close, the broader Nifty 50 has tripped below 9,700, a level last seen in early August.
However, this temporary correction has not deterred the global investment bank and brokerage firm Morgan Stanley from keeping the hope alive and kicking on Indian economy and stock markets. Morgan Stanley, which earlier predicted Nifty to nearly triple to 30,000 points in five years, now sees Sensex rising to as much as 1,30,000 points in a decade from now in the bull case scenario, as it expects India to go on to become the third-largest economy.
Earlier this year, Ridham Desai MD of Morgan Stanley had said in an interview with CNBC-TV18 that he expects the index to reach 30,000 points — that’s for NSE Nifty, not for BSE Sensex — in the next five years, on the back of renewed consumption, greatly improved exports and infrastructure spending by the government. This roughly works out to a CAGR of 25.33% for the Nifty over the next five years. We take a look at five key reasons why Morgan Stanley sees Sensex topping 1,00,000 points even in the base case scenario.
GST — ‘Advantage’
Morgan Stanley has identified the GST implementation as a disruption to smaller businesses leading to job losses but has also said that subsequently, it is going to help lower the public debt. Morgan Stanley said India’s political stability, privacy debate over Aadhaar and other judicial decisions will remain crucial to India’s growth. However, the country’s digitisation drive would give the economy a great push.
India is expected to be a $6 trillion economy — the third largest in the world — in the next 10 years, helped by digitisation, Morgan Stanley said in a report. India’s digitisation drive would provide a boost of 50-75 basis points to GDP growth in the coming decade. Incidentally, earlier this week, Reliance Industries Chairman Mukesh Ambani echoed the same sentiment, saying that Indian economy will nearly triple to $7 trillion in a decade and will become the world’s third largest, helped by the penetration of digitisation, artificial intelligence and technology in all walks of the life. Ridham Desai, Morgan Stanley’s India equity strategist and head of India research, said in the report that India will “achieve upper-middle income status by 2026-27”, adding, “We expect India’s real and nominal GDP growth to compound annually by 7.1% and 11.2% respectively over the coming decade.”
Better equity culture
Ridham Desai said that apart from some short-term teething problems including implementation of GST, there is scope for visible shifts in economic activity starting in 2018. This would, in turn, eventually lead India to be among the top five equity markets in the world with a market capitalisation of $6.1 trillion and the third-largest listed financial services sector around the globe with a market cap of $1.8 trillion by 2027, as domestic participation in equities strengthens. “We project equity saving of $420-525 billion over the next ten years, versus the respective $60 billion and $120 billion that households and foreign portfolios invested over the previous ten years,” he said.
Thriving consumer business
India’s consumer sectors alone are likely to add about $1.5 trillion over the next ten years to the domestic equity markets. Accordingly, Ridham Desai also noted that stock markets are likely to remain robust as a stronger economic growth should drive stronger corporate earnings growth. Not only this, Morgan Stanley also projects gross FDI inflows at $120 billion by the financial year 2026-27, almost double the current 12-month trailing run rate of $64 billion, Ridham Desai said.