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Mumbai: Indian stock market could start pricing in a stronger election outcome in the coming weeks causing Nifty to break its four-month range on the upside, while the broader market is likely to outperform the index, said Morgan Stanley.
"The Nifty could be looking to break its 10500-11,000 range to the upside, which it has respected since November 2018," said Morgan Stanley.
Sensex ended up 89.32 points or 0.2% from previous close at 36725.42 on Thursday while Nifty ended up 5.20 points or flat from the previous close at 11058.20.
The BSE MidCap and BSE SmallCap index has gained 5% and 8.4% respectively in the last two weeks.
In the same period, the Sensex has gained 2.3%.
Morgan Stanley attributed India's underperformance this year to rising oil prices and political uncertainty.
Both these issues have may have hit their peak in terms of negativity, said Morgan Stanley, adding that its global team does not expect oil prices to continue to rise.
Morgan Stanley said the recent events on the political front including various pre-poll alliance formations, farm cash transfer scheme and military action across the border may cause polarization in the upcoming general elections and increases probability of a stronger governmment.
The firm's base case is that the election outcome, likely in May, may be too close to call.
Morgan Stanley believes that growth is likely moving higher with PMIs in expansion zone, credit growth at multi-year highs, corporate revenue growth at a near 20-quarter high and corporate profits at 25-quarter highs.
"If we are right about the growth cycle, the ballot may fade in importance as 2019 unfolds, albeit with some ongoing volatility in share prices," said Morgan Stanley.
