IS IT ACHIEVABLE...

Leading US brokerage Morgan Stanley today said the BSE benchmark Sensex is likely to surge 25 per cent to cross the 23,000-mark by December, 2013. The 30-share barometer hit all-time high of 21,206.77 on January 10, 2008. The index would be trading at 14.9 times the estimated earnings of FY2013-14 to touch an all-time high of 23,069 by next year-end, the investment banker said in a statement, adding, the rally is likely to be driven by the cyclicals which are nearing ultra-cheap valuations. "Conditions for a new bull-market are getting slowly satisfied. The yield curve has stopped flattening, liquidity is improving, valuations appear supportive and profit margin expansion is a growing possibility in the coming months," the global financial services firm said in a note. Predicting a near 25-percentage points upside to the Sensex by the end of December 2013 (from Friday's close of 18,464.27), the firm said it is expecting the index earnings growth at 10 per cent this fiscal and a whopping 19 per cent in 2013-14, driven by ultra cheap cyclicals and energy and materials on which it is "overweight". The brokerage said, it is "underweight" on consumer staples, and "neutral" on industrials even as it has cut its technology exposure by 100 basis points. Attributing the bullishness to the new-found resolve from the government on the reform front, a Morgan Stanley said, "The decisive policy action at home (reduction in subsidies and opening up of FDI) and, more crucially, concerted action by the European and the US central banks have reduced the country's tail-risk linked to poor macro stability (the twin deficits on the fiscal and current account fronts)". "We are also trimming technology by 100 bps (1 per cent). Consequently, our average sector position has expanded, and we see this as our emerging strategy, as the average correlations of stocks to the market appear to be falling and no longer merits extreme focus on stock picking," it said. On the rationale for its portfolio picks, it said, "Our preference for quality cyclicals was already expressed last month. We now put money to work on cyclicals in our sector model portfolio. Accordingly, we go underweight on consumer staples and raise energy and materials to overweight, as well as taking industrials to neutral. Noting that the broad market earnings may have troughed or could trough in the current quarter, the note said "we have seen M1 growth put in a firm base and revenue growth should slowly accelerate in the coming months. Margins could rise in the coming months with a favorable base effect driven by the relative movement in the current and fiscal deficit. "Interest rates are already down y-o-y, and that should stem the steep rise witnessed in interest costs in the previous 12 months. The risk to earnings is that the investment rate collapses, although recent signals suggest that the public sector is starting to spend money," it said.