 "Morgan Stanley slashes Sensex target to 18,200")
American brokerage Morgan Stanley today slashed its Sensex target for the next 12 months to 18,200, citing weakening macro fundamentals of the economy.
"We cut our Sensex earnings growth estimates from 10.5% to 4.1% for this fiscal and from 19% to 12.7% for the next. The new 12-month forward Sensex target is 18,200. Given the tail risks, we underscore our bear case-- a 14% fall in the Sensex with a 35% probability," Morgan Stanley India head Ridham Desai said in a note.
Citing the weakening macro fundamentals for the downgrade, Desai said, "We are trimming our broad market earnings growth forecast for FY14 to -6% from 12% and introducing an estimate of 5% for FY15.
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On the triggers for the market, he said that signalling has been a key issue for the market and said "the RBI needs to reaffirm that high rates will linger and the government needs to endorse fiscal consolidation."
He also warned that without credible policy measures, the market will be punitive with prices, especially the rupee forcing macro rebalancing.
Equating the equity valuation template to the 1998 levels, he said a negative gap implies the market is not cheap though the P/B is in its bottom decile.
"The market is pricing in a six month forward of 9% nominal IIP growth and a -5% one-year forward earnings growth offering a 5.8% risk premium.
For the domestic market, the key problem is that the US yields will keep real rates here higher for longer at a time when growth is already slowing, he concluded.