Here is how Sensex can climb Mt 80k by December 2023, according to Morgan Stanley

Currently, Nifty's TTM valuation at 23.27 PE is over 630 basis points higher than the 10-year average PE.

Foreign brokerage firm Morgan Stanley sees Sensex hitting 80,000 by December 2023, if India is included in global bond indices which can result in $20 billion of inflows over the subsequent 12 months.

India's inclusion in global bond indices has already been pushed back. Morgan Stanley had first anticipated it in early 2022, but a Reuters report in September stated that the wait might be longer. According to the news agency, bond settlement rules and tax complexities need to be resolved before the inclusion takes place.

Also Read: Morgan Stanley predicts $6.5-trillion boom in India’s stock market by 2030

Other factors, as per Morgan Stanley, which can propel Sensex to 80,000 include commodity prices like oil and fertiliser correcting sharply, and earnings growth compounding at the rate of 25 percent annually over FY2022-25.

The brokerage firm's base case target for Sensex is 68,500, assuming the effects of the Ukraine-Russia conflict do not spill over into 2023 and the US does not slip into a recession. "Government policy should remain supportive, and the RBI should execute a calibrated exit," it added.

Ridham Desai, who is Morgan Stanley's India equity strategist, expects profit share in GDP to double from its current level of 4 percent to 8 percent over the next four years, indicating that broad market earnings could compound annually at 20-25 percent.

Meanwhile, in the bear case scenario, the firm sees Sensex dropping to 52,000 if commodity prices remain elevated, RBI tightens aggressively and recession in the US and Europe drag down India’s growth. There's a 20 percent probability of this, according to Morgan Stanley.

Also Read: MC Explains | Why India should pursue inclusion in global bond indices

"An up-trending profit cycle, a likely peak in short rates and ebbing global macro risks relative to 2022 make the case for absolute upside to Indian stocks," added Desai in his equity strategy note.

However, India's trailing outperformance could take a breather in the first half of 2023, given its relative valuations, he said, adding that other emerging markets are likely to benefit from a relatively more benign world.

Currently, Nifty's TTM valuation at 23.27 PE is over 630 basis points higher than the 10-year average PE.

PE stands for the price-to-earnings ratio.

On November 28, both Sensex and Nifty ended at a record-high close. Sensex gained 182.21 points to end at 62,475.85. Nifty closed at 18,553.60 after touching a lifetime high of 18,613.20.

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