Top picks: 10 stocks in focus by Morgan Stanley over large caps, macro investing

Among the most important catalysts are the market’s view on the 2024 general election outcome – something that will come into play in 2H23 – the rate cycle both home (the peak is likely behind us) and abroad, the strength of the earnings cycle (we are 10% ahead of the consensus for F2024), the impact of China reopening, especially on input prices and energy costs,and the likely increase in the institutional bid on shares, said the brokerage.

Commenting on the outlook of Sensex, the brokerage said “Our BSE Sensex target of 68,500 implies upside potential of 13% to December 2023. This level suggests that the BSE Sensex will trade at a trailing P/E multiple of 20.5x, ahead of the 25-year average of 20x. The premium over the historical average reflects greater confidence in medium-term growth.”

“We assume no major up move in commodity prices especially oil and fertilizer (either due China reopening or the conflict in Ukraine), stable domestic growth as per our forecasts, the US does not slip into a recession, RBI exits at 6.5% repo and government policy remains supportive via strong infrastructure spending. Sensex earnings compound 22% annually through F2025E,” the brokerage further added.

“We believe emerging markets are benefiting from a relatively more benign world vs. 2022,and India’s relative valuations imply that its recent underperformance may continue for a few more weeks. India’s relative fundamentals in terms of earnings growth remains strong,” said Ridham Desai.

The brokerage’s biggest sector views are financials, consumer discretionary, industrials, and technology. Among the sectors, the brokerage has made a focus on 10 stocks which are FSNE-Commerce, Maruti Suzuki, Titan, ICICI Bank, SBI Cards, SBI Life Insurance, HAL, Larsen & Toubro, Infosys and UltraTech Cement.

For the financial sector, the brokerage said peaking short rates, higher credit growth, and peaking credit costs imply outperformance for financials, especially for non-bank lenders. Whereas for the consumer discretionary sector, the brokerage said we expect a recovery in rural demand to aid overall consumption demand. Key upside risk is falling raw material costs and downside risk is slower urban growth.

Strong government capex and a nascent pickup in private capex drive our overweight, said against the industrial stocks whereas against the technology stock picks the brokerage said position reflects our barbell strategy. Least exposed to domestic growth although US recession is a risk.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.