Investment bank Morgan Stanley today joined the bandwagon and set a new target of 23,069 points by the end of December 2013 for the 30-share index BSE Sensex. The new target implies an index trading at 14.9 times estimated 2014 earnings.
Earlier Deutsche Bank and Citigroup also raised their targets for Sensex after the government announced reforms last week, including opening up the country’s multi-brand retail sector to foreign direct investment.
Deutsche Bank raised its December 2012 target for the BSE index to 20,000. Citigroup raised its BSE target to 19,900 for June 2013 from its previous target of 18,400 for December.
But Morgan Stanley target surpasses an all time high of 21,206.77 points hit by Sensex on January 10, 2008. “Conditions for a new bull market are getting slowly satisfied. The yield curve has stopped flattening, liquidity is improving, valuations appear supportive and profit margin expansion is a growing possibility in the coming months,” the investment bank said in a note.
The bank expects a domestic earnings growth of 10 percent in fiscal 2013 and of 19 per cent in fiscal 2014. Morgan Stanley has said that cyclicals are “ultra cheap,” and prefers “quality” cyclicals over defensives.
As a result, the investment bank is “underweight” on consumer staples in its model portfolio, while raising energy and materials to “overweight” and taking industrials to “neutral.” Morgan Stanley has also cut technology exposure in its portfolio by 100 bps.