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JM Morgan Stanley sees Sensex reaching 5800 in a year, puts GDP at 6.5 pc

JM Morgan Stanley's research team has set 5,800 as the one year target for the BSE Sensex.

It has also revised its real GDP growth forecast for 1999-2000 to 6.5 per cent from 5.6 per cent earlier.

In a recent report on India, Ridham Desai, India strategist for J M Morgan Stanley, said: ''Our 12-month BSE Sensex target of 5,800 reflects rising corporate earnings and an improvement in valuations. We think an improving macro-environment of low inflation, rising growth and a benign interest rate environment and strong market dynamics are supportive of valuations.

''We also find that the 1999 bull market in India is different from that in 1994. Our positive view of the market is reinforced by three critical differences we find between these, namely, sustainability of economic growth, cheaper valuations and favourable demand-supply for equities.

''The recovery in economic growth is being driven by consumption and infrastructure activity, unlike 1994 when it was mainly driven by capacity creation in the manufacturing sector. Moreover, what makes the valuations compelling now is that while the market is almost at the same level as in 1994, earnings have grown by 54 per cent over the past four financial years (1995-99).''

JM Morgan Stanley has also raised its real GDP growth forecast for 1999-00 to 6.5 per cent from 5.6 per cent based on upward revisions in the statistical authorities' estimates for last year's agricultural production, which is likely to boost rural consumption this year.

Commenting on the revised forecast, Vikram Goyal, regional economist at Morgan Stanley Dean Witter, said, ''Accounting for the lagged impact of last year's substantially higher agricultural output on this year's rural consumption, we are raising our real GDP growth."

The share of private consumption in economic output is estimated at about 58 per cent of which about 40 to 50 per cent is rural-based. Ignoring second-round effects on investment, we estimate that an increase in the growth rate for rural incomes for 1998-99 would boost our real GDP growth forecast for the current fiscal year from 5.6 to 6.5 per cent.

''This stronger-than-anticipated agricultural rebound further reinforces our views on the cyclical economic recovery and lower interest rates-favourable macro settings for equity investment,'' he added.

JM Morgan Stanley is the joint venture between JM Financial, one of India's most respected domestic investment banks and Morgan Stanley Dean Witter, one of the world's pre-eminent financial services firms.

UNI

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