According to Morgan Stanley, there is a 10 percent probability that the government‘s policy response will be tepid and, more crucially, global conditions will deteriorate. In such a scenario, Sensex earnings growth for the current year will be 10 percent and the index could slip to 22,800 by May
Brokerage house Morgan Stanley sees these nine catalysts influencing market sentiment over the next six months.
Excerpts from the Morgan Stanley report, authored by Ridham Desai and Sheela Rathi:
Bihar elections: A victory for the BJP will be taken well by the market. However, predicting the results could prove difficult given the consolidation of opposition parties in Bihar.
Legislation: If the GST bill is not passed soon, then the April-16 deadline may not be met. We do not think a delay of 3-6 months in implementation will upset equity markets significantly.
Government action: Apart from ongoing changes to make business easy to do, the most important action is government capital spending
Macro data: We expect better growth data in the months ahead and the likelihood that inflation surprises on the downside.
Next rate cut?: Our out-of-consensus view of a further 50-75bp in policy rate cuts for F2016 is premised on further weakening in inflation data.
Earnings: The silver lining is that the earnings pain is concentrated in a handful of companies and sectors. We expect further improvement in September quarter earnings.
Equity supply: A bunching of supply from the government which has budgeted a doubling of divestments and other sources is a risk to short-term equity prices.
Valuations: Absolute valuations are not helping the market call given they are bang in the middle of the range. Relative valuations appear rich.
Global factors: Global growth, China growth, oil prices, EM news flow and US Fed moves as an indicator of global liquidity, are factors to watch.
According to the brokerage, there is a 10 percent probability that the government’s policy response will be tepid and, more crucially, global conditions will deteriorate. In such a scenario, Sensex earnings growth for the current year will be 10 percent and the index could slip to 22,800 by May.
The brokerage sees a 40 percent probability that the policy response could be better than expected, causing interest rates to fall and make equities relatively cheaper. In such a scenario, Sensex earnings growth for the current year will be 20 percent and the index could rise to 35,700 by May.The Great Diwali Discount!
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First Published on Sep 2, 2015 10:40 am