India’s budget can power stocks another 10% higher


Morgan Stanley now sees an upside of almost 10% from current levels for the S&P BSE Sensex by the year-end, even as the gauge has climbed more than 7% in two sessions, disregarding concern over valuations in one of Asia’s most expensive equity markets.

MUMBAI: India’s plan to spend its way out of the coronavirus funk is capturing the imagination of stock watchers, with some rushing to revise higher their targets for the nation’s equity benchmarks.

Morgan Stanley now sees an upside of almost 10% from current levels for the S&P BSE Sensex by the year-end, even as the gauge has climbed more than 7% in two sessions, disregarding concern over valuations in one of Asia’s most expensive equity markets.

The budget may further boost the appeal of local stocks for global funds, who have bought shares so far this year while selling Indian debt. But the plan to spend almost US$500bil signals more pain for bond traders.

India’s benchmark 10-year sovereign yield extended its advance Tuesday after climbing by the most since May on Monday following the budget, putting pressure on the central bank to step in. Yields on rupee corporate bonds also jumped across the curve a second day.

“Government spending coupled with reforms and greater privatisation thrust could support economic recovery, create earning upgrades in financial year 2022 and thus support India’s premium valuations, ” according to Rahul Singh, chief investment officer for equities at Tata Asset Management Ltd. India can see “superior earnings momentum especially if the budget is successful in reviving the investment cycle, ” he said.

The Sensex has already wiped out the 5.3% loss it suffered last week ahead of the budget event, and is now trading at 22.6 times earnings on a blended basis, versus a five-year average multiple of about 18.

Stock-market sentiment has also been buoyed by the absence of new taxes on the wealthy and corporations in the budget. Traders expect the government’s growth push to boost corporate profits. ─ Bloomberg

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