Morgan Stanley cuts year-end Sensex target to 62,000

This comes after Credit Suisse, earlier this week, downgraded its India position to underweight from overweight, citing high oil prices.

“Implied volatility and market breadth, among other indicators, are suggesting the market is likely to find a floor sooner than later. That said, a rise in domestic policy rates may bring another bout of volatility beyond geopolitics,” said Morgan Stanley in a note to clients. The brokerage has ‘double upgraded’ the technology sector, adding Infosys and Tech Mahindra to its focus list and deleting Tata Steel and NTPC from the list.

The financial services firm has revised its bull case scenario target to 75,000 from 80,000 earlier and bear case scenario target to 45,000 from 50,000.

Morgan Stanley’s base case is under the assumption that the Russia-Ukraine tensions would end in weeks and that future Covid-19 waves would not restrict economic activity in a big way. The base target of Morgan Stanley for the Sensex assumes that the government policy remains supportive and the Reserve Bank of India takes a calibrated exit.

The firm said Indian markets have held up well against the rise in oil prices to multi-year highs but the length of the military action in Ukraine could determine its impact on earnings and multiples.

Indian indices are still down 3% since February 24 when Russia launched its military operation in Ukraine, sending equity markets into a panic globally. This conflict added to worries of foreign investors who have been sellers of Indian equities for the last four months due to expensive valuation and prospects of aggressive rate hikes in the US.

The firm is overweight financials, consumer discretionary and industrials and has cut stance on consumer staples to underweight from equal-weight.

Earlier this week, Credit Suisse, terming its downgrade of India’s position as a tactical move, said it will use the funds freed from India to raise its China and Australia position to overweight.

“Because of its strong structural prospects and robust earnings per share momentum, we will look for opportunities to re-enter the market, but today we tactically cut our India position. Higher oil prices hurt the current account, add to inflationary pressures and increase sensitivity to Fed rate hikes,” said Credit Suisse.