New Delhi, Nov 4 Indian equities look poised to recover from a steep relative correction as key drivers of underperformance begin to reverse due to front loading of capex and GST rate cuts, a report said on Tuesday.
US-based investment banking firm Morgan Stanley projected a 50 per cent probability that the BSE Sensex will reach a target of 89,000, indicating an upside potential of 6 per cent by June 2026.
A positive growth surprise is likely in the months ahead as India’s growth cycle is set to accelerate, backed by the reflation effort of the RBI and the government via rate cuts and cash reserve ratio (CRR) cut, the report said.
Policy measures cited as catalysts include Reserve Bank of bank deregulation and liquidity infusion, front loading of capex and a near Rs 1.5 trillion in GST rate cuts, Morgan Stanley said
The thawing of relations with China and the China's anti-involution were also highlighted by the investment banking firm.
"A likely India US trade deal should further boost sentiment. Thus, India’s hawkish macro set-up post-Covid is now unwinding. Relative valuations have corrected and likely made a trough in October," it added.
The slowdown that began in the second half of 2024, rich relative valuations, and absence of explicit AI-related trades had weighed on India, while delays in a US trade deal and India’s low beta in a global bull market added pressure, analysts said.
The falling intensity of oil in GDP, rising share of exports in GDP (especially services), and fiscal consolidation should lower real rates and inflation volatility, creating conditions for higher price-to-earnings multiples, the report said.
Key near-term drivers include potential RBI policy easing in the ongoing quarter, India-US trade deal, and improved foreign portfolio investor flows, it noted.
Morgan Stanley said that sectorally it prefers domestic cyclicals over defensives and went overweight on financials, consumer discretionary and industrials.
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