Morgan Stanley has elevated India's outlook from “equal weight” to "overweight", saying that it believes the country is at the beginning of a long-wave boom.
The global brokerage cited easing valuations as compared to October last year, when it identified the onset of a new bull market in emerging market equities. This is India's second upgrade for India this year. On March 31, the brokerage firm upgraded it's view of Indian markets from “underweight” to “equal weight”.
What does an 'overweight' India mean?
The “overweight” status means India is expected to perform better in the future. The brokerage said in a note that the country is now the most-preferred emerging market (EM), rising from the sixth spot to the top rank. This is due to supportive foreign inflows, macro stability and positive earnings outlook, it added.
Morgan Stanley pointed out structural reforms, corporate tax cuts and formalisation of the economy fundamentally changed the country.
"Multipolar world trends are supporting FDI and portfolio flows, with India adding a reform and macro-stability agenda that underpins a strong capex and profit outlook. We see a secular trend towards sustained superior earnings per share (EPS) growth versus EM over the cycle," Morgan Stanley analysts said, adding that a young demographic profile is supporting equity inflows.
Sectorally, the brokerage remains overweight on financials, consumer discretionary and industrial segments in India, and has an "add" rating on Larsen & Toubro and Maruti Suzuki India in its Asia Pacific focus and Global Emerging Markets lists.
China downgraded to 'equal weight
Indian market situation is completely different from China, which was downgraded to “equal weight”. Morgan Stanley believes India is at the start of a long-wave boom at the same time as China may be ending one.
"We think returning India to an "overweight" rating and downgrading China to "equal weight" is warranted," analysts said, referring to the Indian markets' outperformance over China as a sign of a structural breakout in favour of India.
“The July Politburo meeting signalled policy easing, but key issues including LGFV debt, the property and labour markets and the geopolitical situation need to improve significantly, in our view, for sustainable inflows and further re-rating," analysts at Morgan Stanley wrote.
