Cut the GDP growth debate: More investors projecting Sensex at 45-50K

Garner says India, along with Brazil, is relatively immune to the US-China trade war.

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India will outperform other emerging markets, and Sensex will likely hit 45,000 in next one year, says Jonathan Garner, Managing Director, Morgan Stanley.
Bullish projections for India’s equity benchmark Sensex have been rising, despite question marks over economic growth numbers, primary data reflecting clear signs of slowdown and the financial system smarting under a crippling liquidity and debt default crisis.

India will outperform other emerging markets, and Sensex will likely hit 45,000 in next one year, says Jonathan Garner, Managing Director, Morgan Stanley.

That would require Sensex to rise over 12 per cent from current level and may lift its forward P/E to 21 times, well above its 25-year trailing average of 19 times. On Wednesday, the index traded at 28 times on a trailing basis.


Garner says India, along with Brazil, is relatively immune to the US-China trade war. “India can outperform in this environment and is showing different characteristics at a time when global growth is softening significantly,” he said.

Mahesh Nandurkar, India Strategist at CLSA, last week said the 13,000 mark is not far away for Nifty. He said that 10 per cent lea is achievable in next 12 months in spite of the economy having faces issues like the consumer slowdown.

Manish Sonthalia, Head of PMS at Motilal Oswal Asset Management, says Sensex should scale 50,000 in two quarters from a base case assumption of a 25 per cent earnings growth.
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Domestic brokerage Kotak Securities sees Nifty at 13,500 by March 2020 in a bull case scenario.

Morgan Stanley’s Garner says growth in the emerging markets may surprise the world on the upside at the time when the US may shock on the downside. He named India and Brazil as his favourites.

“These countries are non-manufacturing in terms of economy and structure of the stock market. India may see manufacturing supply chain reallocation into the country and that is a theme which is definitely appearing. Brazil is an agriculture superpower. We are going to see reduced Chinese purchases in deep Canadian agriculture product which is positive for Brazil,” Garner told ETNOW in an interview.

He said the ongoing problem of swine fever throughout Southeast Asia and China will further benefit Brazil, as it is a big producer of chicken. South-east Asia is currently struggling to contain the spread of African swine fever, also known as “pig Ebola”.
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Garner said growth needs to pick up in India from current levels. “The interest rate cut cycle, falling crude oil prices and resolution of bad debt in the banking sector will aid the economy,” he said.

India’s system-wide non-performing assets stock declined massively to 9.3 per cent in March 2019 from 11.5 percent the year before, which was much faster than RBI’s own estimates, Crisil said.
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The global investor said India is a very interesting market from a demographic perspective. Household savings and inflows from domestic mutual funds need to be in place for further movement of Indian equity market.

He said he was biased towards domestic demand players and believes manufacturing in India (Make in India campaign) can actually gain in this turbulent environment and there could be supply chain reallocation in the long run.

About time India dealt with banking issue, Garner said. Aggregative demand is not a problem in India, at this stage of development.

“It is really a question of financing that in an appropriate manner. It needs more focus in the second regime of the government. The new team at the Finance Minister should deliver on recapitalisation of PSU banks,” he said.

Garner, who expects earnings growth in high teens for this financial year, said the growth rate has not achieved its potential in India.

He said Issues with private capex and the realty sector are hammering growth. “Micro execution has been stronger than macro execution in India. Modi’s first regime has changed a lot of things. It should bear fruit in the long term.”
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