Global financial major Morgan Stanley today flagged slow movement on policy front, especially in clearing backlog of projects and poor fiscal consolidation, as some of the key risks to Indian economy, even as it remained bullish on the outlook for the stock market.
Reiterating the Sensex target of 32,500 by December, Morgan Stanley India Managing Director Ridham Desai said, “Growth is improving and inflation is going down which are good for equities.
“Keeping the risk factors in mind, we think the markets should go up 20 per cent over the next 12 months, led largely by high earnings growth in the broader market.”
“In fact, you can expect high earnings growth in the next two quarters,” he added.
Morgan Stanley is among the few overseas brokerages that has not pared their market outlook as after MAT controversy and delay in key legislative measures like the new land law and the GST, coupled with the drought scare last week, the market has been on downward spiral, falling nearly 12 per cent from its peak in March, when the Sensex closed above 30,030.
Following this, many foreign brokerages have slashed their Sensex and Nifty targets.
While Citi cut its Sensex forecast to 32,200 by December from its earlier projection of 33,000, the British brokerage HSBC trimmed it to 26,900 from 30,100.
On the other hand, the Swiss investment bank UBS reduced its Nifty target to 9,200 by December from 9,600.
According to the global financial services firm, earnings are expected to fare better going forward than in the previous quarter, when it hit a nadir, even though it does not expect a recovery to happen before the September quarter.
Coupled with these domestic risks, there are also external headwinds like the possible rate by the US Federal Reserve in September and the lingering slowdown in China, among others, which could impact market sentiments.