Investment firm Morgan Stanley has forecast a base case of 30,333 for the Sensex with a 50 per cent probability by the year-end. There is also a 40 per cent probability of the Sensex touching 36,939 and a 10 per cent chance of the benchmark touching 26,007 during the same period.

Unveiling its India Equity strategy Morgan Stanley’s Ridham Desai said, “Delay in the recapitalisation of state-owned banks which are impaired by a high level of stressed assets and are unlikely to generate enough credit growth in the early stages of the next cycle and government policy action, especially in clearing the backlog of projects and fiscal consolidation, are key risks.”

Negatives “Negative feedback from global factors, such as deflation risks, sovereign risks, higher US rates, poor Chinese growth, delay in cutting local rates and consequent rupee overvaluation besides overweight emerging market portfolios and bunched-up equity supply also form part of the key risks,” he added. Morgan Stanley has forecast a rate cut of about 75-100 basis points for 2015 based on the premise that inflation data would further weaken.

The investment firm sees earnings growth of 24 per cent for the Sensex over the next two years. This would be dependent on healing corporate balance sheets as evidenced by improving credit ratings, policy reforms in tax, infrastructure, subsidies, fiscal consolidation and the ease of doing business with intermittent law making challenges.

Structurally low debt, favourable demographics and a lack of deflation make India appear to be on the better side of the global picture, according to Morgan Stanley.

With domestic households likely to become big savers in equities, incrementally in the coming months an upturn in the earnings cycle and falling rates will likely support valuations.

Finally, the market has been preferring quality and growth over value and junk, underscoring a nascent bull market, Morgan Stanley said.

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