Morgan Stanley has not changed its stance on Indian equities in the last few months despite a healthy correction from the peak levels in frontline indices. However, Jonathan Garner, Asia Equity Strategist at Morgan Stanley, believes that the Indian markets can withstand a somewhat expensive multiple given relatively strong GDP growth, subdued inflation and the fact that the RBI can probably move towards cutting interest rates sometime in the next 18 - 24 months, reported Business Standard.
In an exclusive interview with BS, Garner, however, said that he still believes that for foreign investors, there is a good opportunity to buy Japan, Korea and Taiwan in the Asian region and India will get its share of passive flows into the EM tracker funds.
He pointed out that for foreign investors the valuations of Indian markets have been very expensive. But many foreign investors understand that there is a strong domestic mutual fund bid here in India from local investors; and that's frustrating for them because it keeps the market relatively expensive, he stated.
The expert also mentioned that Morgan Stanley had changed its view on the overall situation in Asia in October 2022 and was looking at early cycle cyclicals in markets like Korea and Taiwan and then China to perform well. China's performance, however, has been somewhat disappointing recently. After an initial recovery and growth, activity has slowed. But Korea and Taiwan have done very well since then, Garner added.
He also highlighted that Morgan Stanley's top pick market is Japan and they have been constructive on Japanese equities for many years.
"Leading companies there are generating much higher ROEs than they used to. That's to do with improved capex and operating margins, but also better balance sheet management. And this year in particular, as the US dollar is quite strong and the yen is weak, which is actually helping corporate margins. Within the overall EMs, we like Korea and Taiwan. But India, we think, will perform in line with the overall emerging markets. There can be around 10 percent upside from here on, which is also our base case," he said.
