According to a recent report by Morgan Stanley, Indian equities continue to be attractive despite high valuations due to strong earnings growth prospects and increasing investment from both domestic and foreign investors. Despite the rich relative valuations, Ridham Desai, the managing director of Morgan Stanley India, believes that India’s profit book, lower return correlation with oil and US growth/Fed cycles, and lower beta to EM set up the country for strong equity markets. The brokerage’s Sensex target of 68,500 points suggests a potential upside of 10% to December 2023, but it also trades at a trailing P/E of 20.5 times, higher than the 25-year average of 20 times. This premium valuation reflects greater confidence in medium-term growth. Morgan Stanley has retained its equal weight stance on Indian equity markets while reducing its active position on China overweight.
In March of this year, Morgan Stanley upgraded the Indian market to equal weight as relative valuations had improved from exceptionally expensive levels last October, and execution on structural opportunities was improving. In less than a decade, India has undergone major transformations, including Make in India initiatives, GST, massive changes in real estate regulations, digitalization of social transfers, new bankruptcy law, sharp decline in corporate balance sheet leverage, and a focus on FDI.
Morgan Stanley has stated that domestic demand in India is strong, with an encouraging demographic trend, surging services exports, and more FDI going forward. The global investment bank is more bullish on cyclicals over defensives and has tilted their preference to small- and midcaps over large caps. They are also overweight on financials, technology, consumer discretionary and industrials, and underweight on all other sectors.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)
