Current risks already in the price, fundamental valuations suggest uptrend to continue: Ridham Desai

Ridham_Desai

Morgan Stanley in its latest report raised 30-share BSE Sensex target to 42,000 for September 2019 implying a potential upside of 11 percent.

The earlier base case target was 36,000 for June 2019, which has already been achieved by the Sensex in July 2018.

In a report, Ridham Desai of Morgan Stanley said a delay in earnings growth recovery was one of the key reasons why investors were not feeling bullish on Indian equities. "We think this is likely to change as growth picks up in the coming quarters."

He said, "I think India is on a recovery path which began a few months ago, which is the reason why stocks have been going up."

He feels profit sharing GDP ratio is at an all-time low and expects sharp recovery in corporate profit margin in the next 4-6 quarters.

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Ridham Desai

MD & Head of India Research|Morgan Stanley

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The market has been grappling with several risks like high crude oil prices, weaker rupee, bond yield above 8 percent and trade war. He believes these risks seems to be already priced in as the stock market in general is forward looking.

He feels the market is not feeling the panic or exuberance like we saw in January 2008, March 2009 and August 2013.

So the stuff that is going to affect market we don't know what is going to happen in next few months, he said. "Certainly there is risk, which could be global recession, election results may go wrong, any mistake could happen from Federal Reserve and Reserve Bank of India etc."

But fundamental valuations suggest that we are in uptrend, give and take a few points, he believes. "Indian equities continued to be in an uptrend and investors should bet on favourite underperformers. "Investors should choose price underperformers with improving earnings outlook and finally broaden their portfolios by adding small and midcaps."

On the elections front, he said it is hard to tell with respect to how elections going to pan out. Normally leadership matters to economy and market. "Whenever there was coalition government, economy did well and whenever there is single party government, the economy did not do well due to lack of leadership, so leadership is key."

If the market is pessimistic about results then buy it or too optimistic then stay aside, he advised. But he said there is not signal right now.

On its Focus List, Morgan Stanley added SBI, Prestige Estates and Apollo Hospitals, and removed Infosys, Havells and Zee Entertainment, given the recent downgrades.