As Morgan Stanley deems India ready for significant and sustained growth at a time when the rest of the world’s economy is slowing, Indian stock rank has been raised to ‘overweight’. Parallely, it lowered the rating of China to “equal weight” from “overweight”.
This upgrade was made only four months after Morgan Stanley upgraded India to ‘equal weight’ from ‘underweight’ on March 31, taking account of factors including a lower valuation premium and resilience in the economy. According to Morgan, India moved up from its 6th position which gives it a crucial first place in the rankings.
The Morgan Stanley report pointed out that the relative valuation has fallen to a lesser extent than last October, resulting in this sharp rise. According to the brokerage business, the current trend of a Multipolar World is driving foreign direct investment (FDI) and portfolio flows, and India’s reform-oriented and macro-stable agenda boosts its prospects for robust capital expenditure (capex) and profitability outlook.In addition, specific Indian sectors have been upgraded by the brokerage which are now considered to be overweight including industrials, financials and consumer discretionary stocks. The Commission expects these sectors to benefit from the ongoing structural growth story in India.
Morgan Stanley added India stocks Larsen & Toubro and Maruti Suzuki, as well as removed Titan from its focus list for Asia Pacific ex Japan. The (GEM) Global Emerging Markets focus list also included Larsen & Toubro and Maruti Suzuki.
Morgan Stanley’s note however highlights a number of major downside risks to Indian markets in spite of the favorable outlook. The report indicated the potential for adverse effects, notably if productivity improvements did not keep pace with a sudden increase in inflation and central bank policy changes. In addition, we need to keep a close eye on the potential disruption of India’s services exports and workforce caused by artificial intelligence.
Morgan Stanley has also upgraded Greece to an ‘overweight’ rating, downgraded Australia to an ‘underweight’ and revised the MSCI China and Taiwan index from overweight to equal weight. Furthermore, Morgan Stanley predicts the Sensex to reach 68,500 points by December, a 10% gain from its present level, and the index to trade at a trailing price-to-earnings multiple of 20.5 times, 20x higher when compared to an average of 25-years. According to the brokerage business, the premium over the historical average implies increased confidence in medium-term growth.