The S&P BSE Sensex reclaimed mount 30K earlier this week to hit a fresh record high and if earnings recovery happens better than estimates, then Sensex could well hit mount 39K by December 2017, Morgan Stanley said in a report.

Earnings revisions will likely turn positive in the coming six months after six years in negative territory. Valuations are not yet stretched against history, other markets and bonds.

Rising demand for equities from domestic households and potential M&A activity could take multiples higher in coming months, said the report authored by Ridham Desai and Sheela Rathi.

Morgan Stanley’s December 2017 target, the BSE Sensex would trade at 16x one-year forward earnings, similar to its historical average. The bull-case multiple would be 17x our bull-case earnings and about 19x our base-case earnings.

There is a 30 percent probability that Sensex could trade at 39K on policy reforms as well as global factors. The much talked about earnings growth accelerates to 19 percent in FY2018 and about 27 percent in FY2019.

Earnings revisions will likely turn positive in the coming six months after six years in negative territory. Valuations are not yet stretched against history, other markets and bonds.

Rising demand for equities from domestic households and potential M&A activity could take multiples higher in coming months, said the report authored by Ridham Desai and Sheela Rathi.

Morgan Stanley’s December 2017 target, the BSE Sensex would trade at 16x one-year forward earnings, similar to its historical average. The bull-case multiple would be 17x our bull-case earnings and about 19x our base-case earnings.

There is a 30 percent probability that Sensex could trade at 39K on policy reforms as well as global factors. The much talked about earnings growth accelerates to 19 percent in FY2018 and about 27 percent in FY2019.