Morgan Stanley cuts India’s overweight rating but remains bullish on China; upgrades Brazil

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Published: November 28, 2017 1:34:04 PM

Morgan Stanley has cut the size of its ‘overweight’ rating on India for 2018 to accommodate Brazil's upgrade to the overweight category. However, China continues to remain the global firm’s biggest bet in the category.

Morgan Stanley believes that India will see 0-525 billion in domestic equity inflows that could hold India’s relative multiples higher for longer, over the coming 10 years. (Image: Reuters)

In the wake of twin-risks, rising oil prices and an expected volatility in the market due to a number of elections scheduled in states, Morgan Stanley has cut the size of its ‘overweight’ rating on India for 2018 to accommodate Brazil’s upgrade to the overweight category. However, China continues to remain the global firm’s biggest bet in the category. A Morgan Stanley report co-authored by Jonathan Garner, the firm’s chief Asia and Emerging Markets Equity Strategist, reduced overweight rating on India from +250 basis points (bps) to +150 bps.

The report lists weak return on equity (RoE) and net margin trend as weak scores for India. Nevertheless, Morgan Stanley believes that India will see $420-525 billion in domestic equity inflows that could hold India’s relative multiples higher for longer, over the coming 10 years.

The global firm expects India’s GDP growth to accelerate to 7.5 percent in the next financial year 2018-19 and to 7.7 percent in FY20, from 6.7 percent in FY2017-18, as the threats by demonetisation and the implementation of the goods and services tax (GST) bill have already started to wane. A pickup in growth and consumption will boost private capex, the report said.

An earlier report by Morgan Stanley had said that India is likely to be the world’s fastest-growing large economy in the next 10 years, driven by digitisation, favourable demographics, globalisation and reforms. The trend line in India’s annual GDP growth has been accelerating to 6.9 percent in 2000s, from 5.8 percent in the 1990s, and this momentum is likely to continue in the next decade as well, Morgan Stanley had maintained.

Morgan Stanley’s India research head and equity strategist Ridham Desai had then said, “We estimate that digitisation will provide a boost of 50-75 basis points to GDP growth and forecast that India will grow to USD 6 trillion economies and achieve upper-middle income status by 2026-27.”

Talking about specific sectors, Morgan Stanley continues to bet on banks, capital goods, food & beverage and tobacco sectors. Pharmaceuticals, household and personal products (FMCG) remain their key underweights in the Indian context.

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