Even as the run-up to the 2019 general elections begin, Morgan Stanley forecasts that Sensex could hit 41,500 in case of an absolute majority for any one of the national parties, be it Modi’s BJP or the Congress Party. According to Morgan Stanley, if any of the major party, ie, winning around 260+ seats like the BJP-led NDA in 2014, by any of the contenders means a bull case scenario for Sensex, where it will surge to 41,500.
In case of a thumping victory by either parties, Morgan Stanley says that investors should buy domestic cyclical stocks. Sharing its strategy in a bull case scenario, wherein a sweeping victory by either party plays out, Morgan Stanley said that investors must be over-weight consumer discretionary stocks, financials and industrials. Further, the investors must underweight consumer staples, energy, healthcare and IT stocks.
However, in case any single party fails to attain majority, the 30-share index could feel increased pressure. “The world’s biggest democratic elections (~930 million voters) are 12 months away and the market is likely to start pricing in an election outcome in the coming months. The biggest investor concern: a weak coalition government, one loath to quick administrative decisions, inducing political uncertainty,” Morgan Stanley said in its report.
According to the global firm, in case there is a weak coalition, with participation of a lead party only in a supporting role such as in 1996, the Sensex could tank to 25,000 levels. Sharing its forecast for two other scenarios, Morgan Stanley said that in case of a weak majority wherein the lead party wins around 220 seats, like the UPA in 2009, the Sensex could see limited upsurge to 35,700.
Summing up, the firm observed that in India, elections present tail risks, especially if the outcome counters what is priced in. “The market appears unsure of whether India will re-elect a majority government in 2019. If this uncertainty rises, we think stocks will struggle to rise in coming months,” Morgan Stanley noted.
Source: Financial Express