Why Sensex may touch 68,500 by end of 2023. Morgan Stanley explains

Expecting no major upside in commodity prices and stable growth in domestic economy, Morgan Stanley has predicted that 30-stock BSE Sensex may touch 68,500 levels by end of December 2023. The global financial company said that level mentioned above for the key benchmark index of Dalal Street suggests that it will trade at a trailing P/E multiple of 20.5x, ahead of the 25-year average of 20x. The premium over the historical average reflects greater confidence in medium-term growth.

Highlighting the reasons for such bullish prediction on Sensex, Morgan Stanley research report said, “We assume no major up move in commodity prices especially oil and fertilizer (either due China reopening or the conflict in Ukraine), stable domestic growth as per our forecasts, the US does not slip into a recession, RBI exits at 6.5% repo and government policy remains supportive via strong infrastructure spending. Sensex earnings compound 22% annually through F2025E.”

Morgan Stanley believes that every market goes through bulls and bear phase and the above prediction is for a normal market. In bulls case, Morgan Stanley believes that Sensex may go on to hit 80,000 in 2023 whereas in bear case, BSE Sensex may touch up to 52,000 levels on the downside.

On Sensex target in bulls case, Morgan Stanley says, “In addition to the above, India is included in the global bond indices, resulting in nearly US$20 billion of inflows over the 12 months, the market starts pricing a majority government in 2024 and the equity limit for retirement funds is hiked to 25%. Earnings growth compounds 25% annually over F2022-25E.”

On what if commodity prices jump, Morgan Stanley says, “Commodity prices rise, and the RBI ends up taking the repo rate beyond 7% to protect macro stability, a protracted recession in the developed world drags down India’s growth, the market starts believing that India will vote in a minority government in 2024 and a sharp draw down in shares rattles domestic flows. Sensex earnings compound 18% annually over F2022-25E, but equity multiples de-rate to reflect poor macro conditions.”

Morgan Stanley believes that the above targets in regard to Sensex can be made possible through outperformance by Non-banking stocks whereas the financial company expected recovery in consumer stocks after rise in demand of consumer items. Industrial stocks may also find buying interest by bulls on strong government capex.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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