 "Markets")
Amid a growing debate over a potential disconnect between the exuberant equity markets and an economy deeply impacted by the pandemic, a foreign brokerage on Tuesday said it sees a further 15 per cent upside in equities which will take the Sensex to 50,000 points by December 2021.
The report by American brokerage Morgan Stanley comes at a time when many experts, including RBI Governor Shaktikanta Das, have noted the disconnect between the real economy and the markets.
There has been a long rally in the indices after a correction in March. The GDP contracted by 23.9 per cent for the April-June period as compared to the year-ago period and the country is expected to close FY21 with a negative growth of around 10 per cent.
Experts have in the past attributed the strong rally to easy liquidity globally as central banks attempt to pump prime activity, while some have also said that investors have a longer time horizon which makes them bullish.
"We remain in a bull market that started in March, and even though one should expect corrections along the way, the equity market may have more legs before it tops out," analysts at the brokerage said.
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They added that COVID-19 infections appear to have peaked, high-frequency growth indicators are coming in strong, government policy action is beating expectations, and Indian companies are picking up activity through the pandemic.
The firm said investors are yet to price-in the current growth cycle in and therefore it sees a further upside for the indices.
In an earlier estimate, the firm said it was expecting the Sensex to be at 37,300 points in June 2021.
The brokerage said it expects domestic cyclicals to outperform export oriented companies, and added that scrips which are sensitive to interest rates and consumer-oriented will outperform while the ones in the energy sector will underperform.
It appeared more bullish on financial stocks and less so on healthcare ones, and added that it is "overweight" on companies in the consumer discretionary, industrials, financials, and utilities space and "underweight" on technology and energy sectors.
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