Four months after upgrading India's outlook to equal-weight, global brokerage house Morgan Stanley has yet again upgraded India's rating to overweight now on the back of reduced valuation premium and the resilient economy.
India is ranked #1 in our framework, improving from #6 in our last review, highlighted the brokerage. With this upgrade, India is now the top-ranked, most-preferred market among emerging markets (EMs), it said, adding that relative valuations have become less extreme compared to last October, contributing to this meteoric rise.
Going ahead, MS expects the BSE Sensex to reach 68,500 points by December. It said Sensex will trade at a price-to-earnings multiple of 20.5 times compared to a 25-year average of 20 times. The premium over the historical average reflects greater confidence in medium-term growth, noted the brokerage
Meanwhile, Morgan Stanley also cut its rating on Chinese stocks to equal weight as growth and valuation concerns remain. It said that investors should capitalise on a rally spurred by government stimulus pledges to take profits.
What does this mean for Indian markets? Will this lead to more foreign investor inflows? Let's see what experts have to say.
According to experts, this upgrade is warranted. They believe that India in this scenario, India is likely to attract more FPI flows than any other emerging market. Even though Indian market valuations are high in the short-term, for long-term investors, valuations are fair, they added.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
There is a high probability that India will be the fastest-growing large economy in the world for many years to come. India’s demographic dividend, entrepreneurial talent, macro stability and vibrant democratic system can drive sustained high growth and consequent impressive corporate earnings. This near-consensus is already baked into market valuations in India which are high compared to peers.
In contrast to the rosy outlook for the Indian economy, China’s growth prospects appear bleak. The declining population, crisis in the property market, high debt-GDP ratio, and very high youth unemployment are serious headwinds for China.
In this scenario, India is likely to attract more FPI flows than any other emerging market. Even though Indian market valuations are high in the short term, for long-term investors, valuations are fair.
Shantanu Bhargava, Managing Director, Head of Discretionary Investment Services, Waterfield Advisors.
A combination of the long-term structural factors and the near-term strengths seems to have inspired Morgan Stanley’s decision to upgrade its views on India's markets to overweight.
In the latest quarter, India grew by 6.1 percent, exceeding market expectations by 100 bps and continues to be the fastest-growing big economy in the world. The service sector, construction and agriculture saw a faster increase than predicted. Plus, India is experiencing an extended period of macroeconomic stability with a much better current account deficit, adequate reserves, and manageable inflation.
India has long-term structural interest among most investors. The prevailing narrative among global FPIs is India's growing business and political stability, superior demographics, regulatory strength, manufacturing potential, and sovereign investor friendliness.
Over the next few years, FPIs will allocate more to India if this structural narrative remains intact, macroeconomic stability is maintained, and relative values don't become completely irrational.
