Mumbai: Equity returns are unlikely to follow a ‘V-shaped’ pattern going forward due to lack of evidence of a strong growth cycle and global headwinds, said foreign brokerage Morgan Stanley.

Weak global growth, stress in parts of the financial sector and reflexive impact from weak share prices on the real economy are key risks for the Indian equity market, the brokerage said.

“Our proprietary leading return indicator suggests that equity market returns are likely improving after a poor few months. This is because the market has support from valuations and sentiment indicators we track,” said Morgan Stanley. “However, given the absence of evidence of a strong growth cycle and the headwinds from global factors, it is unlikely that equity returns follow a V-shape,” the brokerage said.

Morgan Stanley said patient investors will be rewarded well over 12 months, and has a base case of 45,000 on the Sensex by June 2020. The Sensex ended down 141.33 points or 0.38 per cent at 37,531.98 on Monday. The benchmark index is 6.9 per cent off the lifetime high of 40,312.07 hit in early June.

Morgan Stanley said earnings growth is likely to be better in the coming two years than in the previous few years given the tax cuts but the government and the Reserve Bank of India will need to continue to work on lifting sentiment in both the equity markets and the economy. .....ET