Sensex to hit 61,000 by year-end: Morgan Stanley raises bull, bear targets on Budget buoyancy

With Nirmala Sitharaman’s third Union Budget speech turning out to be the most positive for equity markets so far, global brokerage and research firm Morgan Stanley has raised its year-end target for Sensex to 61,000 in a bull-case. “The budget has favoured a wider fiscal deficit with a view to spur growth through higher capex,” analysts at Morgan Stanley said in a note. On February 1, Finance Minister Nirmala Sitharaman presented a growth-oriented Budget, with higher fiscal deficit limits and privatisation plans.

Sensex and Nifty hit fresh all-time highs in the days following the Union Budget 2021. “Equity market sentiment has been buoyed by the lack of any new income tax, the push for growth, and a refreshed approach to monetization of government assets,” the note said. Additionally, Morgan Stanely believes that the Budget outlines measures to make the financial sector more robust. If implemented correctly, the budget could aid an increase in the share of corporate profits in GDP.

Bull, Base, and Bear case

In their Base case, Morgan Stanely has a 55,000 points target for Sensex by December 2021. “This assumes stability in the current virus situation and a recovery in the economy per our forecasts. We expect Sensex earnings to rise 32% in F2022,” they said. On the other hand, if the virus resurfaces and growth falters, the Bear case of Morgan Stanley sees Sensex plummeting to 41,000. Previously, Morgan Stanley had base case and bear case targets of 50,000 and 37,000 points, respectively, on Sensex.

A Bull case scenario, however, is the most optimistic, pegging Sensex at 61,000 by December this year if the virus ebbs completely, recovery in growth is sustained, and global stimulus supports asset prices. Earlier, in November last year, Morgan Stanley had given a target of 50,000 for Sensex. The same was achieved within the first month of the current calendar year.

Equity strategy

Talking equity strategy, Morgan Stanley analysts said they continue to favour domestic cyclicals over exporters, rate-sensitive and consumers over energy and SMIDs (small and mid-caps) over large caps. “Our view is that the budget proposals may promote a new private investment cycle, with a recovery in domestic equity flows and overall growth,” they said.

The key themes of the budget, as highlighted by Morgan Stanely, are — very gradual fiscal consolidation glide path with looser-than-expected fiscal deficit targets, good quality of spending mix and reasonable assumptions on fiscal math, and focus on privatization, asset monetization, and long-term funding for infrastructure investment.

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