Indian equity indices are trading at record levels outperforming their emerging market peers.

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The Sensex particularly is having a dream run with the 30-share BSE index hitting a life-time high of 38,402.96 in intra-day trade on August 21.

Global financial services firm, Morgan Stanley, thinks that Indian market’s bull-run likely will continue with a 30 percent chance that the Sensex may hit the 44,000-mark by June 2019.

The chips are in India’s favour driven by macro stability, low policy uncertainty, improving growth and domestic flows amid the recent emerging market turmoil.

"India's policy environment has defied expectations and remained relatively benign despite the coming elections in 2019. Macro stability is strong backed by a central bank committed to keeping real rates positive," wrote Morgan Stanley's Ridham Desai and Sheela Rathi in a research report.

Corporate confidence is also at high and private sector’s profit share in GDP (Gross domestic product) could rise significantly.

“India's growth is likely accelerating relative to emerging markets. Our work shows that corporate confidence is at a multiyear high and profits are likely to mean revert from below trend. Indeed, India's corporate profit share in GDP is at close to all-time lows, which means the upcycle could be quite significant - a contrast to most other parts of the world,” the report added.

The technical also support the view with India's yield curve is undergoing bullish steepening, with the upside suggesting that the equity market is gaining conviction in the growth cycle.

On our June 2019 target of 36,000, the Sensex would trade at just under 16x one-year forward P/E, which below its historical average, Morgan Stanely said in the report.

The report also points at risks as well as recovery in other emerging markets could end India’s outperformance, while a collapse could lead India to fall like quality stocks do when in a bear market.

Yet, another risk is the election cycle, which brings its own set of uncertainties such as inflation from food prices or fiscal slippage. In a 20 percent bearish scenario, the Sensex could slide to 26,500 levels.

The Morgan Stanley report also projects the Sensex earnings growth of 5 percent on year-on-year (YoY) basis in FY18, 23 percent YoY in FY19 and 24 percent YoY in FY20, in a moderate 50 percent probability scenario.

The report suggest large-cap GARP stocks among banks, discretionary consumption and industrials.

First Published:Aug 22, 2018 1:57 PM IST