Global brokerage Morgan Stanley today said the economy has
come out of the trough and will grow at 6 per cent in the current fiscal. Sounding
bullish on the stock markets, it pegged the Sensex target at 23,000 by
December. "We are confident that the economy has come out of the furrow,
though the recovery will be gradual beginning the second half, and will close
the fiscal at 6 per cent," Morgan Stanley Asia Pacific economist Chetan
Ahya told reporters at the 15th MS India summit here. He has based his optimism
on the recovery in exports which have been rising since January, apart from the
election-related spends that will help drive consumption. He also pointed to
the positive vibes since September last, which could help revive investments.
He said while exports constitute 20 per cent of the GDP,
consumption chips in with a high 55 per cent, hence the optimism of a gradual
recovery. It can be noted that the government has pegged 6.1-6.7 per cent
growth this fiscal, while the RBI has pegged it at a low 5.7 per cent, and many
private agencies have projected it between 5.6 and 6 per cent. Last fiscal the
economy hit a decadal low of 5.025 per cent. On the market, which is trading at
only 15 times the PE, the brokerage said, it is bullish on the Sensex, which
will close the calendar at 23,000 points. "We see the Sensex sniffing at
23,000 by December and we are bullish on cyclicals and a bit averse to
defencives like consumer staples. We are also overweight on financial sector
scrips such as private banks and the entire energy sector as the government has
let the market realize the prices of petrol and diesel," Morgan Stanley
India managing director Ridham Desai told reporters. (MORE) PTI B However,
Desai warned that one of the biggest worries for the market is the rising share
of the FII holdings in frontline stocks in particular and the market in
general. Explaining the rationale for this, he said, the problem will come if
the foreign liquidity starts tapering off, which is sure to happen if the US
withdraws the stimulus. He said FIIs currently own at 2.5 per cent of the
market (market capitalization) which is within the safe zone.
"But the ideal is 2 per cent of the m-cap." It can
be noted that FIIs pumped in USD 31 billion worth into the domestic equities
last fiscal and nearly USD 13 billion so far in 2013. However, he was soon to
add that in 2004 and 2007-08 this was more than 4 per cent, and pointed out
that everyone saw what happened to the market then. However, he noted that as
of now, the global liquidity is very comfortably skewed to the country, adding
the problem with the market is on the sentiment side due to forthcoming polls
and the domestic liquidity issues and not valuation which is comfortable at 15
times the PE (price to earnings ratio) now. On his expectation from the Reserve
Bank, Ahya said, the problem is that banks are not bringing down their lending
rates despite the RBI cutting rates by 125 bps since January.
And the key reason for this is the high retail or consumer
inflation, which is forcing people to park money elsewhere and not in banks,
which is also well reflected in the below par deposit growth. On the rate cut
front, he said the June 17 review will be a non-event and sees only 25-50 bps
reduction in the repo rate through the fiscal.
Source : Economic Times
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