Morgan Stanley’s select Indian stock picks, even as emerging markets fall out of favour post covid

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Published: June 17, 2020 6:16 PM

Global brokerage and research firm Morgan Stanley has picked a handful of Indian stocks in the post coronavirus world, despite being overall bullish on developed markets instead of emerging ones such as India.

In the post-coronavirus world, the global brokerage said, leadership of emerging markets looks unlikely owing to the adverse outcomes of the coronavirus in emerging economies.

Global brokerage and research firm Morgan Stanley has picked a handful of Indian stocks in the post coronavirus world, despite being overall bullish on developed markets instead of emerging ones such as India. Morgan Stanley in its Asia EM Equity Strategy Mid-Year Outlook, under various screeners, picked automobile giant Maruti Suzuki, utilities firm NTPC, and telecommunications behemoth Bharti Airtel as some of the stocks that pose a significant upside from current levels. In the post-coronavirus world, the global brokerage said, leadership of emerging markets looks unlikely owing to the adverse outcomes of the coronavirus in emerging economies.

Morgan Stanley sees developed economies outpace the emerging ones in the post-coronavirus world. While Indian market along with Singapore, China, Russia, and Brazil remain preferred and overweight by the investment bank, which has added Indonesia and Greece to the list. “We have been of the view that this will be a sharper but shorter recession. Recent Upside surprises in the incoming growth data and policy action have increased our confidence that this will be a deep V-shaped recession,” the mid-year strategy outlook said. Policy measures have been termed as significant across the globe, while adding that it expects policy makers to maintain an accommodative policy stance. Base case assumptions for GDP by Morgan Stanley, peg India to de-grow by 1.7% in 2020 before jumping to a 9% GDP growth rate in 2021. “Moreover, strong growth in agriculture and allied activities, normal monsoon prediction by the IMD, and an increase in the crops support price should support the rural Indian economy. Further, MSCI India has underperformed the broader EM market with YTD price returns of -13.9% vs -5.9% by MSCI EM,” the report said.

“On a sector basis we move more cyclical, with modest OWs to materials and energy, while moving UW communication services, alongside Utilities,” the mid-year strategy outlook said. Morgan Stanley remains overweight on India’s industrial sector. The Best Business Models, which has outperformed the MSCI EM since 2014, consists of four Indian stocks. Namely these include; HDFC Bank, Petronet LNG, Maruti Suzuki, and Tata Consultancy Services. These companies have been picked up as ‘highest quality companies’. Analysts at Morgan Stanley currently see upside of 16.9% on Petronet LNG from current levels while an upside of 7.6% is being eyed from Maruti Suzuki’s current market price.

For investors going for value or cyclical stocks, Morgan Stanley has picked NTPC as overweight in the category with a 40% upside to the target price. In the mid-year outlook, the global emerging market and Asia excluding Japan focus list has also been updated. “We have reviewed our APxJ and GEM Focus Lists as part of the mid-year outlook process and look to capture some of the incremental changes of view from a macro, market/sector selection and style preference basis,” Morgan Stanley said. Among the two India listed firms, Bharti Airtel is overweight in the category with an upside of 29.4% expected from the telecom giant.

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