India’s stock market will continue to grow on its strong base despite setbacks due to the election uncertainty, the potential trade war between India and the US, and increasing tension with Pakistan.
Global Brokerage Morgan Stanley has expressed its hope that the Sensex will reach 42,000 by the end of this year.
Significantly, the Sensex was able to touch the level of 38,989.65 on August 29, 2018, which is the highest level so far. Since then, the Sensex has declined by about 6%.
The market was shocked by the IL & FS crisis being termed as India’s “Lehman Brothers” and the market was on sell mode. The weak global cues have further boosted the sell off and the Sensex has slipped to below 35,000 level.
Morgan Stanley has said in its report that due to uncertainty over the rising oil prices and general elections to be held in May of this year, the market declined. According to the report, “This year India’s poor performance is due to rising oil prices and political uncertainty.”
However, the agency has said that the foundation of the Indian stock market is very strong and it is showing that it will be strengthening in the coming days, because the market valuation has reached the middle level.
The report says, “The foundations are looking strong and it is a sign of strength, because the valuations are at the middle level. Given the PMI data, there is a possibility of growth. Credit growth is at the highest level over the last several years and corporate revenue growth is at the height of the last twenty quarters. Corporate profit is at the highest level of the last 25 quarters.”
The agency said, “During the last eight weeks, the activities on the political front, including the announcement of the pre-election coalition, subsidy relief of farmers and military action on the border can increase polarization in the next general elections and stronger than it The possibility of the arrival of the government has increased.”
The agency has made three types of estimates about the possibility of stock market.
1. In the normal position, by December 2019, the benchmark index of the Bombay Stock Exchange, the Sensex can go up to 42,000. Its probability is 50 percent.
2. If the bull run started in the market, then the market could reach level of 47,000 by the end of the year. Its probability is 30 percent.
However, this would be on the back of a strong election result and a party getting a majority.
3. In the case of bear run, the market can go up to 33,000. Its probability is 20 percent. However, it will be possible only if global conditions are bad and election results will not be okay.
Significantly, last year the Sensex jumped 6.67 percent. The Sensex was able to touch the upper level of 38,989.65 during this period, while its lower level was 32,483.84.