The global brokerage house, Morgan Stanley, predicts that India will see new highs in the coming months and this will be driven by fundamental. According to Ridham Desai, ” The re-rating of Indian equities is on the anvil for fundamental reasons.”
Morgan Stanley said that India is likely to gain share in global output in the coming decades, driven by strong foundational factors, including robust population growth, a functioning democracy, macro stability-influenced policy, better infrastructure, a rising entrepreneurial class, and improving social outcomes.
The implications are that India will become the world’s most sought-after consumer market, it will undergo a major energy transition, credit to GDP will rise, and manufacturing could gain share in GDP.
10 stocks that Morgan Stanley is Overweight on
Morgan Stanley has curated a focus list comprising 10 stocks. The brokerage house is ‘overweight’ on these stocks.
Jubilant FoodWorks, Maruti Suzuki India, Trent, Titan Company, Bajaj Finance, ICICI Bank, Interglobe Aviation, Larsen & Toubro, Ultratech Cement, and Coforge were picked by Morgan Stanley.
The international brokerage firm has given a recap of its sector views as well. The consumer discretionary is expected a recovery in urban demand, which will aid overall consumption demand. Talking about Industrial sector, Morgan Stanley said that strong government capex and a nascent pickup in private capex led the brokerage’s overweight rating.
Not just consumer discretionary and industrial, financials are likely to outperform on the back of peaking short rates, higher credit growth, and low credit costs, especially for the non-bank lenders.
However, the brokerage doesn’t see much value in communication services as it says that there are better opportunities elsewhere. Similarly, consumer staples fundamentals could improve as rural growth has recovered. However, stocks remain richly valued.
Morgan Stanley ‘Underweight’ on 4 sectors
Other than those, here are sectors on which Morgan Stanely has underwieght rating.
- Utilities (-100bp): We are UW given the sector’s lack of cyclicality.
- Energy (-200bp): We prefer domestic cyclicals over global cyclicals.
- Healthcare (-200bp): We are avoiding defensive sectors.
- Materials (-300bp): We prefer domestic materials over global. In addition, we take cyclical exposure via industrials.
On the valuation parse, Morgan Stanley said that its proprietary leading return indicator, which combines six gauges spanning from valuation to corporate fundamentals to macro conditions, has arrived at the expected return. It currently suggests modest returns.
“Our composite valuation indicator combines 11 absolute and relative valuation metrics and leads equity returns. The indicator is saying equity returns will be around 30% in the next 12 months,” said Morgan Stanley.