These 7 stocks may enter $10 billion market cap in 3 years, says Morgan Stanley

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Published: August 14, 2017 4:52:06 PM

As the Indian equities continue to gather rising inflows from the foreign market along with the buoyant push from domestic institutions, top research and brokerage firm Morgan Stanley has identified seven stocks.

Shares of Cummins India, JSW Steel, Lupin, M&M Financial, Petronet LNG, UPL, and ZEE Entertainment are included in the list.

As the Indian equities continue to gather rising inflows from the foreign market along with the buoyant push from domestic institutions, top research and brokerage firm Morgan Stanley has identified seven stocks that are likely to enter in $10 billion market capitalisation in over three years. Shares of Cummins India, JSW Steel, Lupin, M&M Financial, Petronet LNG, UPL, and ZEE Entertainment are included in the list. While there are other seven stocks which are already in the $10 billion market cap club are Bajaj Auto, BPCL, HDFC Bank, IndusInd Bank, Infosys, Mahindra & Mahindra, Maruti Suzuki India.

Morgan Stanley has cited three reasons why mega caps will be an important space to watch out for. As the Indian stocks gain weight in the MSCI EM index, the market will attract tourist money and bigger inflows, which will look for big liquid names to invest in. Adding further, India’s domestic institutions grow in size, they will no longer be able to rely on mid-cap and small-cap stocks to generate outperformance. Making the right mega-cap and the large-cap call may become crucial to generating alpha.

And, lastly, the reason to evaluate mega caps is the likely growth in domestic exchange-traded funds (ETF). The global investment bank believes that domestic ETFs’ assets are likely to grow 30x in the coming decade to $200 billion.”

Ridham Desai and Sheela Rathi of Morgan Stanley, in the report said, “The criteria for our shortlist is a combination of growth and valuations and include: double-digit, two-year forward earnings growth; positive change in return on capital; attractive valuations (implied long-term earnings growth and earnings yield relative to return on assets); and beta (<1.1).”

For selecting discretionary consumer stocks, Desai and Rathi believe that strong consumer loan growth, positive real incomes and a jobs recovery are driving our positive view. Desai and Rathi pointed out that the reason behind picking private banks is because of the high liquidity in banks which will help loan growth recovery in the coming months. At the same time, the duo mentioned that while margins are under pressure for corporate banks, retail banks, non-banks and property companies look fine on the margin front.

Earlier in late July 2017, Nifty 50 crossed the long-awaited five-digit figure of 10,000 for the first time, hitting a high of over 10,010 points. Most experts, both fundamental and technical, still see a lot of further upside in Indian equities over the long term. Earlier last month, Ridham Desai, MD, Morgan Stanley, said in an interview with CNBC-TV18 that he expects NSE’s Nifty index to reach 30,000 points in the next five years, on the back of renewed consumption, greatly improved exports and infrastructure spending by the government. Indian equities are on a continuous upswing, with the benchmark indices rising around 21-22% before falling last week.

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