Morgan Stanley raises India stock index target

MUMBAI May 18 (Reuters) - Morgan Stanley (MS.N) on Monday raised its end-2009 target for India's benchmark stock index .BSESN to 15,300 points, up by quarter from current levels, after a decisive victory for the ruling Congress coalition.

"We, now believe, that there is greater probability of our bull case rather than our bear case," analysts Ridham Desai and Sheela Rathi wrote in the note, adding companies will gain from government policy.

Prime Minister Manmohan Singh's left-of-centre coalition won a second term after a clear victory in the general election on Saturday, bolstering hopes for stability and fast paced reforms. For related stories, please see [IN-VOTE].

The earnings growth for the stock index constituents will likely be 2.5 percent in 2009/10, up from the previous view of 10 percent fall, Morgan Stanley said.

The U.S. brokerage expected Indian shares to outperform emerging markets by 25 percent over 12 months. The analysts, whose previous index target was 9,300 points, said they were changing their strategy to buy the dips from sell the rallies.

Indian shares are set to soar on Monday, with a stable government seen as helping reforms needed to boost growth. The BSE index rose 2.5 percent last week to 12,173.42 points, its tenth weekly gain and best close in seven months. [ID:nBOM414350]

"The onus is now on the government to deliver on policy reform. The market multiple will almost immediately rise to reflect more optimistic expectations," the analysts wrote.

Morgan Stanley said it was reducing defensive stocks, such as healthcare, from its model portfolios and adding cyclicals. (Reporting by Narayanan Somasundaram; Editing by Ranjit Gangadharan)