Latest news with #RidhamDesai
New Indian Express
04-08-2025
- Business
- New Indian Express
Morgan Stanley sees Sensex hitting 1 lakh mark by next July in bull case scenario
MUMBAI: Despite the continuing bloodbath in the market amid tariff woes, Wall Street major Morgan Stanley has pegged the benchmark Sensex at the 1-lakh-mark by July 2026 in a bull case scenario, which has a 30% probability, citing several triggers for the potential rally. But in a bear case scenario, with a probability of 20%, the Sensex may plunge to 70,000 by July 2026, while in a base case scenario, the index may scale to 89,000, with a 50% probability. The Sensex is massively down from the all-time peak of 85,978.25 it gained in the last week of September 2024 and after bleeding for five days, it closed with 0.52% at 81,019 on Monday. Morgan Stanley's analysts Ridham Desai and Nayant Parekh said on Monday that there is a strong case for rerating of the domestic stock markets. "Get ready for new highs in the months ahead," they said noting that the country is likely to gain more share in global output in the coming decades, driven by strong foundational factors. These include strong population growth, a functioning democracy, macro stability-influenced policy boosts, better infrastructure, rising entrepreneurial class, and improving social outcomes. Immediate triggers for a rally are a favourable trade deal with the US, more capex announcements, bank credit growth, uniform improvement in high frequency data and improving trade with China. Explaining how they came to the possibility of the Sensex hitting the key milestone of 1,00,000 by next July, they said in the 'base case' scenario, which has 50% probability, it will hit an all-time high of 89,000 by July. "This level assumes continuation in the country's gains in macro stability via fiscal consolidation, increased private investments, and a positive gap between real growth and real rates. Robust domestic growth, slow growth in the US but no recession, and benign oil prices are also part of our assumptions. In our base case, we also assume a benign trade deal with the US," they added.
Economic Times
04-08-2025
- Business
- Economic Times
8 reasons why Morgan Stanley's Ridham Desai thinks Sensex may rally 10% to 89,000 by June 2026
While the Indian stock markets have had a roller coaster ride since hitting their September 2024 lifetime highs, there is a strong case now for their re-rating, according to Morgan Stanley expert Ridham Desai. The Managing Director has estimated a target of 89,000 for the BSE Sensex for June 2026, which is a 10% or an 8,000 points rally over the current levels. ADVERTISEMENT The 30-stock index is currently trading around 80,949, down 6% or 5,000 points from its lifetime high of 85,978.25, scaled on September 27, 2024. It fell as low as 71,425.01 in April hitting its 52-week low. "Our BSE Sensex target of 89,000 implies upside potential of 10% to June 2026. This level suggests that the BSE Sensex would trade at a trailing P/E multiple of 23.5x, ahead of the 25-year average of 21x. The premium over the historical average reflects greater confidence in the medium-term growth cycle in India, India's lower beta, a higher terminal growth rate, and a predictable policy environment," Desai said. Desai in a brokerage note, co-authored by Nayant Parekh said that India share in global output is likely to gain in the coming decades, driven by strong foundational factors, including robust population growth, a functioning democracy, macro stability-influenced policy, better infrastructure, a rising entrepreneurial class, and improving social outcomes. He argues that the implications of India's macro tailwinds will make it the world's most sought-after consumer market. India will undergo a major energy transition, credit to GDP will rise and manufacturing could gain share in GDP. The note said that falling intensity of oil in GDP and rising share of exports in the gross domestic product, especially services, and fiscal consolidation (with likely primary surplus in three years) imply a lower saving imbalance. This will allow structurally lower real rates. Lower inflation volatility as a result of both supply-side and policy changes mean that volatility in interest rates and growth rates will likely fall in coming years. High growth with low volatility and falling interest rates and low beta will amount to a higher P/E. ADVERTISEMENT Lower inflation could support the shift in household balance sheets towards equity in the form of a sustained bid on stocks. "The low beta itself emanates from improved macro stability and the structural shifts in household balance sheet towards equities. Price action hides how much stocks have de-rated relative to long bonds and gold and how India is gaining share in global GDP," the note said. ADVERTISEMENT Desai opines that the soft earnings growth patch that started with 2QF2025 seems to be ending though the market is probably not yet optimism stems from a dovish central bank but he says that the confidence in future growth would need better clarity on the external growth environment and GST rate rationalization. ADVERTISEMENT A final trade deal with the US, more capex announcements, acceleration in loans, uniform improvement in high frequency data and improving trade with China could act as catalysts. While FPI portfolio positioning is at its weakest since the data started in 2000, our view remains that India's low beta implies outperformance in a global bear market but underperformance in a bull market. Downside risks arise from slowing global growth and worsening geopolitics (with a rise in oil prices and/or continuing disruption in supply chains like rare earth/fertilizers). ADVERTISEMENT Desai's most bullish bets remain on the domestic cyclicals, followed by defensives and external-facing sectors. He remains overweight on financials, consumer discretionary and industrials while underweight on energy, materials, utilities and current market is a stock pickers' market in his view. (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
Mint
04-08-2025
- Business
- Mint
Morgan Stanley sees Sensex at 89K by June 2026 on re-rating in Indian stock market
Indian equities are poised for a structural re-rating, with the BSE Sensex projected to scale new highs over the next 12 months, according to a recent strategy note by Morgan Stanley. Equity strategists Ridham Desai and Nayant Parekh have set Sensex target of 89,000 for June 2026, implying a 10% upside from current levels. This strong case for re-rating and the bullish forecast rests on fundamental shifts taking place in the Indian economy — ranging from a robust demographic profile to rising macroeconomic stability and a more predictable policy environment. Morgan Stanley argues that India is likely to gain share in global output, backed by core strengths like its demographic dividend, a functioning democracy, macro stability-influenced policy, better infrastructure, and rising entrepreneurship. These forces are expected to transform India into the world's most sought-after consumer market over the coming decades, while also accelerating its energy transition, credit to GDP, and manufacturing share in GDP. The strategists highlight a significant structural tailwinds - India's falling intensity of oil GDP, rising services exports, and ongoing fiscal consolidation. These trends are helping reduce the country's saving-investment imbalance, potentially keeping real interest rates structurally lower. At the same time, lower inflation volatility as a result of both supply-side and policy changes (flexibility inflation targeting) mean that volatility in interest rates and growth rates is likely falling in coming years. 'High growth with low volatility and falling interest rates and low beta = higher P/E multiple,' the report said. While earnings saw a temporary soft patch beginning in Q2FY25, Desai and Parekh believe the cycle is bottoming out. However, the broader market may not be fully convinced yet. They believe a set of upcoming catalysts could reignite market confidence: a dovish RBI, a possible final trade agreement with the US, GST rate rationalization, more capex announcements, acceleration in loans, and improving trade with China. Meanwhile, FPI positioning is at its weakest since 2000. Analysts maintain that India's low-beta nature makes it an outperformer in global bear markets, although it may underperform during global bull runs. Morgan Stanley has a Sensex target of 89,000 in its base case which implies a trailing P/E of 23.5x, ahead of the 25-year average of 21x. 'The premium over the historical average reflects greater confidence in the medium-term growth cycle in India, India's lower beta, a higher terminal growth rate, and a predictable policy environment,' the report said. In this scenario — assigned a 50% probability — Sensex earnings are expected to compound at 16.8% annually through FY2028. This is underpinned by stable domestic growth, benign oil prices, and a positive real growth-real rate gap, as well as monetary easing and continued retail investor participation. Morgan Stanley has Sensex target of 100,000 in its Bull Case scenario, wherein it assigns 30% probability, assuming oil remains below $65 per barrel, global trade tensions ease significantly, and India accelerates reforms. Earnings could grow at a compounded annual rate of 19% through FY2028. In its Bear Case scenario with 20% probability, it Sensex to fall to 70,000, wherein earnings growth would slow to 15% CAGR, and valuations could compress due to macro headwinds. Morgan Stanley is placing its bets on Domestic Cyclicals over Defensives and Exports. It is overweight on Financials, Consumer Discretionary, and Industrials, while underweight on Energy, Materials, Utilities, and Healthcare. 'This is likely to be a stock pickers' market, in contrast to one driven by top-down or macro factors, and thus we run an average active position of just 80 bps. We are capitalization-agnostic,' Morgan Stanley analysts said. Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
Mint
04-08-2025
- Business
- Mint
India in multi-year bull-market cycle, says Morgan Stanley's Ridham Desai
A steep reduction of India's twin deficits, robust economic growth underpinned by a recovery in the government's capital expenditure, lower real interest rates and rising profit-to-GDP ratio create the perfect mix for a larger portion of household savings to flow into equities. These factors set the stage for a sustained bull market, interspersed with a possible correction or two over the next few years, believes Ridham Desai, managing director and chief equity strategist India, Morgan Stanley. While the Indian economy is resilient enough to weather the ongoing tariff storm kicked up by the US, Desai remains watchful of the next round of negotiations for a bilateral trade agreement between the two countries and the ensuing second order impact of the US actions on Indian corporate confidence and capex cycle, which he believes are more relevant than the import duties themselves. Edited excerpts: What is impact that the 25% tariff and penalty on Indian goods' exports to the US can have on the country's economy and markets? In FY25, India's exports to the US were at $86.5 billion, while its trade surplus with the US was $40.8 billion (1% of GDP). Within sectors, India's exports of electrical machinery are the highest at $15.9 billion, followed by pearls and other precious and semi-precious stones at $10 billion FY25. In terms of share of India's exports to the US, textiles make up close to half of the exports, while the share of pharma products is ~40%. That said, energy, automobiles/auto parts and pharma are excluded from the announcement made on July 30. Again, the talks are still on, and the final tariffs are likely to be different and probably lower. Read more: Indian markets stare at short-term jitters from Trump's tariff hit At an aggregate level, India's goods exports to the US are 2.2% of GDP. This implies a less severe direct impact of tariff-related developments, notwithstanding the relative disadvantage vis-a-vis other nations. Further, nuances will emerge at the sector-level on the basis of the tariff differential with other economies and exposure to the US. We remain watchful of the developments from the next round of negotiations and the second-order impact of the tariffs (through weaker corporate confidence and deferred capex cycle), which in our view is likely to be more relevant than the tariff itself. Profits of broader markets grew in single digits for eight straight quarters, as of March end. This slowdown doesn't seem to worry you. Why? Now, our terms of trade have changed. We need less oil and there is something that the world needs from us, which is our people and our services. And therefore the CAD (current account deficit), our saving deficit, is reducing. Last year, it was down to 0.6% of GDP and it's likely to remain like that. Therefore, we need less funding from the world, and thus have decoupled from the global capital market cycles. Compare this with 10-20 years ago, when we were highly coupled to the world; highly coupled to global capital market cycles because we had a big saving imbalance, and therefore, we needed to continue to rely on global capital flows. So whenever global capital flows shrank, which is what happened during US recessions, we got hit. If you plot the BSE Sensex correlation with US recessions, you get a very tight correlation, even though we did not have a very large share of global trade. The reason why we were so tightly correlated was because of our balance sheet, and dependence for capital flows, not because of dependence on global trade. This has also changed profit structures in India, because now we are losing less profits to the rest of the world. Our profits are currently at about 5% of GDP. Our previous peak, which was hit in 2010, was 7%. And I think we will easily go past 7% due to these structural shifts, and therefore there is a lot more room for earnings growth. Imagine a nominal GDP growth of 10-11% and profits gaining share in GDP; so profit growth will likely be higher than GDP and this cycle may have another 3-5 years to go before it peaks out. Eventually, it does peak out because investments become excessive, bad decisions start being taken and things start tapering out, like they did in 2010. But we are still not there yet, and are a few years away. But can't the relative slowdown in government capex hurt earnings, especially if private capex doesn't fill the gap? In February last year, the government took a decision that the time had come to lift the foot off the fiscal pedal—we did a lot of heavy-lifting during covid, now we got to hand the mantle back to the private sector. So one has to compress the fiscal deficit to prepare for the next crisis when it comes. You cannot be going into any crisis with an elevated deficit because you will not have any room to act. And so, the government announced a massive compression of 110 basis points in capex, which by July, when the final budget came, became 120 basis points. Read more: Vijay L Bhambwani's Ticker: Bulls are running out of time This should have simultaneously been accompanied with monetary easing, but that only came a little later. By the time you came to September 2024, the annualized fiscal deficit was not running at 4.9%, but at 3.4% because the first quarter was lost in elections and in the second quarter, heavy rains disrupted government activity. So, government capex was running way below what was budgeted. Such a deficit compression cannot come without a cost to growth and that is exactly what happened. That is now behind us. Government spending recovered very nicely after October, and with a lag that has come through in earnings. Last quarter earnings were better than expected, and this quarter's earnings will also be quite okay. So that soft spot is behind us. On rate cuts—is there room for more, given the recent frontloading by the Reserve Bank of India (RBI)? The RBI very appropriately started a big rate cut cycle, and now it must decide where real rates need to be. If you look at the current messaging from the RBI, it shows India needs to run 150 to 200 basis points of real rates. The real rate is what keeps your saving in line with the requirement rate of investments for a certain growth target. Given the secular shift in India's terms of trade that now allows it to run a narrower current account deficit, I think the RBI can lower real rates. This means if inflation is under control, nominal interest rates can be much lower than in the past. And I think we are about to enter such a cycle. No country out of the top 25 is anywhere close to the 10-11% nominal growth that India enjoys--China is struggling to get to 5% and will probably end up at 4% because of deflation. The global growth is struggling to get past 3%. So, when you think about equities, the numerator has strong growth with less volatility and the denominator, which is your discount rate, is declining due to likely lower interest rates. If interest rates are falling, and your growth is intact, equity valuations go up. At 20 times, the market is cheap, and this will go much higher before it moderates. So lower real rates, thanks to lower inflation, will spur household balance sheets' shift to equity? Why do you buy bonds in India? Ten years out, the bond yield for a 10-year bond, will yield 6.2%. Earnings growth in India of 11-12% means the equity yield 10 years out is sitting at 14-15%. Why would one buy bonds? India is not a market where growth is exhausted, so the small gap in the equity and the bond yield makes equities attractive. It's no wonder that households in India are buying stocks. They are damn smart. It explains why households are making this shift to their balance sheet… people think this bid (investment in equities) is behind the rising stock prices. No. Stock prices are rising because the fundamentals are good, and the bid is coming because of that. It's the other way around… It is because share prices are rising that the bid is coming. Because households can see they need to alter their balance sheets, which are severely underexposed to equities. Read more: Why does a stronger US dollar spell trouble for Indian equities? In 2015, something quite historic happened in India. For the first time, retirement funds—which are provident funds and the National Pension System—were allowed to buy stocks. Until then, these two entities were not allowed to buy stocks, and the Modi government changed that. This is very similar to what happened in the US in 1980. In 1980, for the first time, 401k plans were allowed to buy stocks and that was Reagan's decision, and what happened in the next 20 years is that US households piled up stocks. Every month, retirement funds would buy shares to lift their allocation and households came in. Essentially, you got the NASDAQ bubble by the end of 1990s. A very similar thing will happen in India, with one difference, which is when we arrived in the present millennium, the baby boomers in the US started retiring and drawing down on their savings and the net flows turned negative. In India, that's not happening for the next 30/40/50 years. We are still going to be adding to the workforce on a net basis. So, this bid is going to sustain. The second difference is the starting point of exposure. Our starting point of exposure is 3%. Today 7% of household savings is in equities. The US is right now at 40%, Europe is at 50%, even Japan which is a conservative society has 20%+ in equities, and it has gone through a 30-year bear market. India is at 7%; this number will easily go past 20%. Anybody out there who is saying the households are going to run away, they just don't understand what is happening. They are not going anywhere. This just sets you up for a very strong bull market, which of course will have corrections along the way, I mean, can we correct 20%? Of course, we can. Markets can correct any time. Just imagine how much this market has digested in the last six months. It has taken in a meaningful slowdown, it has absorbed an India-Pakistan skirmish, it has absorbed an Iran-Israel war, it has absorbed a trade war. It has absorbed so much, and it is standing there like 6-7 odd per cent from all-time highs. So, I think the market wants to go up, not down, and there are fundamental reasons for it—growth is good, volatility is low, rates are falling, and as a consequence, households are shifting their balance sheet allocation. In the trailing 12 months, households saved $800 billion. If they put 10% in equities, that is $80 billion, but they will not put in that much. They are not there yet because it is very difficult to move money at that size and scale, as a large part of corporate India is owned by the controlling stakeholders or promoters. Despite these positive dynamics, why are foreign investors selling? Even though we are a $5 trillion market, the free float is $2.5 trillion. Therefore, it is not like you have that size to absorb this, so that is why prices need to go up. I am just giving you the technical position. Read more: Rupee slide, steep valuations drive FPIs to pull ₹32,311 crore from Indian stocks Secondly, India is now 3.7% of world GDP – it is approximately 3.8 % of the world market cap. How much do foreigners own? 60 basis points. Free float adjusted, if they want to be neutral on India, they need to be at 1.9%. What is that bid? It is $1.8 trillion that they need to move to India. They are not able to do it because every morning at 9:15 am, the domestic investor is standing there to buy stocks; foreigners can't buy and there are only two cohorts in the market. Foreigners and domestic. If domestics have decided that they are coming every morning to buy, foreigners can't buy, they must sell. They can only buy if promoters and corporates decide to sell and that is happening only in a small way. That is the only time foreigners are able to buy, when some corporate comes to sell, either primary or secondary. Promoter selling of ₹70,000 crore this year is not worrisome? In 2007-2008, new issuances in the market were running at about 3% or $30 billion of market cap at $1 trillion. Today, the equivalent number is $120-150 billion, which means I need INR 80,000 crores every month for 12 months before the pain will be felt. I am not seeing that type of capital raising happening. And the reason is because corporate balance sheets are very light. Corporate debt-to-GDP in India is 50%, down from 62%. There is so much ability to borrow, but they are not borrowing. The first thing that corporates will do is borrow money, it's cheap. Why will you dilute? You will borrow money. The exits that we are seeing are largely PEs (private equity) and VCs (venture capital funds) who have to exit because they are running into cycles for their funds. There is very little primary that is happening, it's all secondary. The primary will happen in large scale when corporates have borrowed money. So the first thing you will get is a credit cycle, then you will get an issuance cycle. Is the credit cycle not taking off because of capacity utilization not happening? I think the structure of the economy has evolved and comparing this with the 2007/2010 cycle is not fair. In that cycle, we were still building steel, cement, and a lot of other things that were basic industrial stuff. That stuff is not needed in that large quantity; we've already built a fair bit of infrastructure. There is more work to be done but a lot of heavy-lifting in rail and roads has been done. The other thing that people don't appreciate so much is that India's productivity has gone up. And my guess, it's up 10% over the last 15 years. If productivity is up 10%, it means you need 10% less capital to generate the same unit of output. So, our capex cycle is not going to 39% of GDP, as it was in 2010. It is probably going to peak at 35-36%, and we have another 3.5-4% to go before this capex cycle peaks. I think people who are looking for that largescale capex will be slightly disappointed. It is not going to be at that scale as we saw then. But yes, credit growth will pick up, and in fact what I think will happen is that a large portion of that pickup will happen on household balance sheets. Household debt to GDP is still very shallow, so there is room for it to rise, and there is a culture shift that has happened. What is borrowing money? It is essentially spending your future income. The US has already done that. China has already done it; China is sitting at 320% debt-to-GDP. Europe has done it. India will do it next. So, the next 20-30 years, is going to be a secular rise in household debt-to-GDP, and we are going to spend our future. But by spending your future, what you do effectively is raise your current growth rate. You will have to give it up later, but that story is perhaps three or four decades away. So, it's still too early because our starting point is low. I won't be surprised if we have a multi-year credit growth cycle, led by households, and then supplemented by corporates because when households demand so much, capacity creation will happen.
Time of India
03-06-2025
- Business
- Time of India
India a top growth market but still underowned globally: Matt Orton
"There are a lot of companies who are actively involved in this, but L&T is one of the names I have been looking at deeper, just given an incredibly clean balance sheet, but they have not only exposure to Indian infrastructure but also infrastructure in the GCC where there is a tremendous amount of capex and development and hydrocarbons, ports, all of that. So that is a really-really interesting play right now," says Matt Orton , Raymond James Investment . What brings you to India? Matt Orton: So, I am here for an investor conference with Bank of America . So, as we have talked a lot about India being one of my favourite regions. So, there is a lot of interesting companies that we look at, invest in, and so being able to speak with management teams in person, ask a lot of the questions you need, finding new ideas, I think that is all a critical part of the investment process. And so, it is wonderful to be able to do that in person and then share and talk about ideas with other investors as well. Is it your first India trip? Matt Orton: So, this is my second time in Mumbai. When was the last one? Matt Orton: Last year. So, I was here for the elections which was quite an exciting time to be here. But I bet visibly you must have seen a lot of infra development. I mean, that is something that you cannot miss if you visit Mumbai even a year after. Any infra companies which are part of your portfolio or you are scouting for? Matt Orton: Absolutely. So, the infrastructure story is incredibly exciting. You come here and see the coastal highway between last year and this year just the tunnel being opened, being able to get from where we are in South Mumbai over to here this morning, it is amazing. So, there are a lot of companies who are actively involved in this, but L&T is one of the names I have been looking at deeper, just given an incredibly clean balance sheet, but they have not only exposure to Indian infrastructure but also infrastructure in the GCC where there is a tremendous amount of capex and development and hydrocarbons, ports, all of that. So that is a really-really interesting play right now. Live Events We had Ridham Desai from Morgan Stanley before you came in and he is like okay India everybody knows, everybody loves, but hardly anybody owns it. Is that true from a global perspective that India is a great market to go, but in terms of commitment levels they are minuscule? Matt Orton: It is true. There is a couple of things that are at play. India is a more challenging market to invest in as an overseas investor. You have to be very committed to open up trading licenses. There is definitely passive ways you can play it by some of the ETFs, but there are not as many active options. So, I think as an investor, that is what makes it more exciting because you do not have a tonne of foreign flows going into these companies, there is more room for these ideas to play out. But in conversations with clients, especially as clients are finally starting to look overseas as opposed to the US being the only option as you see good returns coming from the rest of the world, there is a very real openness to finding new markets and other long-term growth opportunities. And so, India is certainly one that is very exciting and is a standout relative to say Europe where there is some very-very interesting opportunities there, but there is not the same growth story. We are looking at the fourth largest economy, soon to be third largest economy in the world, that is a tremendous pool of really-really compelling investments. So, for the long term, you have such growth with the market that I would argue is still underpenetrated from an investment perspective. So, country-wise, which is your largest exposure or region? Matt Orton: So, the US is my largest region right now. I think that the earning story continues to play out. The US market continues to scale this wall of worry. It has been one of the most hated rallies I can remember. But when you look at the fundamentals, the fundamentals are working. Corporate America is working. A lot of the long-term secular growth themes like artificial intelligence, changes to consumer habits, those are all compelling ideas where you are seeing compounding returns in the US. But you look to a market like India as well, a lot of those same themes are playing out and they are embedded even in stories of financial companies, auto companies. So, there is a lot of ways you can play this and that is what I try and do is find these long-term growth themes and how does that fit into different companies around the world. But you do not think there would be a tariff hit back and that is going to stall the growth in US? Matt Orton: So, tariffs are going to hit growth in some way shape or form but a lot of that is already baked into the market. So, you had that vicious selloff after Liberation Day in the US and investors realise that is certainly the ceiling to where tariffs go. Trump was elected talking about 10-15% tariffs, that is essentially where we have settled right now in the US. So, there is going to be ups and downs as we negotiate these trade deals. But hopefully, as you start to see some of them come to the table and you get through that volatility, the market will have recalibrated by that point and it will become fundamentally driven again and we saw what that could look like during earning season.
