The benchmark Sensex and Nifty climbed 0.7 per cent on Friday, bolstered by encouraging global cues and purchases of index heavyweights like HDFC Bank and Reliance Industries. The Sensex closed at 65,721, up by 481 points, or 0.74 per cent, while the Nifty 50 index gained 135 points or 0.7 per cent. HDFC Bank and Reliance, each rising by 1.5 per cent and 1 per cent respectively, contributed to more than half of the benchmark indices’ gains.
Despite the rise, the Sensex and Nifty recorded their second consecutive weekly loss, each falling 0.7 per cent for the week due to selling by foreign portfolio investors (FPIs). Meanwhile, the Nifty Midcap 100 and the Nifty Smallcap 100 marked their sixth consecutive weekly gain.
Investor sentiment towards risky assets was influenced this week by climbing US bond yields and a downgrade of the US sovereign rating by Fitch Ratings. Concurrently, gold prices surged amid growing demand for safe-haven assets.
In a note on Friday, Morgan Stanley highlighted key macro trends for robust performance in domestic markets. These include macro stability, a likely positive balance of payments (BoP) trend, strong relative and absolute growth, and a reliable domestic source of risk capital.
“We believe we are halfway through a profit cycle, with a profit share in GDP rising from a low of 2 per cent in 2020 to about 4 per cent currently, and potentially reaching 8 per cent in the next four to five years. This implies approximately 20 per cent compounding of earnings growth. Key factors supporting this forecast include a new private capex cycle, underleveraged balance sheets, a healthy banking system, lower corporation tax rates, improving trade terms, and a steady consumption demand outlook, slightly offset by a likely consolidation in government deficit,” said Morgan Stanley equity strategists Ridham Desai, Sheela Rathi, and Nayant Parekh in a note titled ‘Three Reasons to Own Indian Stocks.’
A day prior, Morgan Stanley had upgraded India to ‘overweight’ in its Asia Ex-Japan and Emerging Market (EM) allocation. The US-based brokerage now gives India a 75 basis points overweight stance compared to its weightage in the MSCI Asia ex-Japan and MSCI EM indices.
Morgan Stanley set a Sensex target of 68,500 for December 2023, indicating less than 5 per cent upside potential from current levels. The brokerage also predicts the Sensex to trade at a high valuation of 24 times its 12-month forward earnings, above its 25-year average of 20 times.
Morgan Stanley identified key risks in its report, including “slower global growth, tight global liquidity, weather uncertainties, worsening of state fiscal positions, a rise in commodity prices, and relatively high valuations.”
From their lows in March, the Sensex and Nifty have risen nearly 15 per cent. Analysts suggest the markets are currently consolidating following a sharp rally. Thus, selling by FPIs is keeping the markets in check. After investing Rs 1.6 trillion ($20 billion) between March and July, FPIs have turned net sellers this month, offloading approximately Rs 1,300 crore worth of shares.
On Friday, they added Rs 556.32 crore to the selling tally.