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Brokerage firm Morgan Stanley on late Wednesday upgraded India’s outlook to ‘overweight,’ saying that the firm believes that the country is just at the start of a long-wave boom. This comes four months after the firm upgraded India’s outlook to equal weight from underweight on March 31.
An overweight outlook means that Morgan Stanley expects India’s economy to perform better in the future.
In a note, Morgan Stanley said that the country’s macro indicators remain resilient, and added that India’s economy is on track to achieve the GDP forecast of 6.2 per cent.
It said that there are things that have fundamentally changed in India, including structural reforms, supply-side reforms like corporate tax cuts and production-linked incentive (PLI) schemes, and regulation and formalisation of the economy.
Morgan Stanley analysts said, “We see a secular trend towards sustained superior earnings per share (EPS) growth versus EM over the cycle,” and added that a young demographic profile is supporting equity inflows.
With this upgrade, India is now the top ranked, most-preferred market among emerging markets (EMs), the brokerage said.
Morgan Stanley’s upgrade on India comes when it also cut its rating for China to equal weight and said investors should capitalise on a rally spurred by government stimulus pledges to take profits.
“We think returning India to an “overweight” rating and downgrading China to “equal weight” is warranted,” Morgan Stanley analysts said, referring to the Indian markets’ outperformance over China as a sign of a structural breakout in favour of New Delhi.
The firm said it also expects the BSE benchmark index, 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, Morgan Stanley said in its outlook.
Morgan Stanley’s target for Sensex is based on multiple factors, such as the absence of major upward movements in commodity prices, the US escaping a recession, and the Reserve Bank of India maintaining a pause in its repo rate hikes.
(With Reuters inputs)
