Stock market stirrings in India lead experts at Morgan Stanley to single out their top 10 choices for capitalizing on the anticipated market surge, with analyst Ridhan Desai foreseeing a re-evaluation in valuation.
In a recent report, global financial services firm Morgan Stanley has expressed optimism about the Indian equities market, predicting modest returns of around 30% in the next 12 months. The firm's bullish outlook is based on a combination of macroeconomic strength, improving credit conditions, government capital expenditure, and a recovery in urban consumption.
Morgan Stanley has curated a focus list of 10 stocks that they are overweight on, which include Jubilant FoodWorks, Maruti Suzuki India, Trent, Titan Company, Bajaj Finance, ICICI Bank, Interglobe Aviation, Larsen & Toubro, Ultratech Cement, and Coforge. The overweight rating for these stocks is driven by sector-specific positive outlooks. For instance, the firm expects a recovery in urban demand to boost consumer discretionary stocks like Jubilant FoodWorks and Titan. Strong government capital expenditure and a nascent private capex spur industrial names like Larsen & Toubro and Ultratech Cement. Financial stocks such as Bajaj Finance and ICICI Bank are favored due to peaking short-term interest rates, rising credit growth, and low credit costs, particularly for non-bank lenders.
Ridhan Desai, a senior analyst at Morgan Stanley, attributes the re-rating of Indian equities to fundamental reasons. He highlights India's robust population growth, stable macroeconomic policies, improving infrastructure, and a rising entrepreneurial class as fundamental drivers supporting these picks.
In addition to these 10 stocks, Morgan Stanley has also initiated overweight ratings on state-owned financial institutions Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) citing attractive valuations, robust loan growth, and stable asset quality. These may be considered additional favored names in Indian equities.
However, Morgan Stanley is underweight on sectors such as utilities, energy, healthcare, and materials due to lack of cyclical exposure and preference for domestic cyclicals in other sectors. The firm has an 'Underweight' rating on the Materials sector (-300bp), Energy sector (-200bp), and Healthcare sector (-200bp).
The services sector in India has shown signs of recovery, with the services PMI accelerating to 60.5 in July. This growth indicates a robust expansion in the services sector, which is a positive sign for the overall economy.
Despite the positive outlook, Morgan Stanley cautions that the road to recovery may not be smooth. However, they believe that India will gain share in global output in the coming decades, making it an attractive long-term investment destination.
In conclusion, Morgan Stanley favors a mix of consumer discretionary, financials, and industrials in India based on the factors mentioned above. The firm's composite valuation indicator, which combines 11 absolute and relative valuation metrics, supports this bullish outlook.
- Morgan Stanley predicts modest returns of around 30% in the Indian equities market over the next 12 months, attributing this optimism to macroeconomic strength, improving credit conditions, government capital expenditure, and a recovery in urban consumption.
- The firm has curated a focus list of 10 stocks that they are overweight on, including Jubilant FoodWorks, Maruti Suzuki India, Trent, Titan Company, Bajaj Finance, ICICI Bank, Interglobe Aviation, Larsen & Toubro, Ultratech Cement, and Coforge, driven by sector-specific positive outlooks.
- Ridhan Desai, a senior analyst at Morgan Stanley, highlights India's robust population growth, stable macroeconomic policies, improving infrastructure, and a rising entrepreneurial class as fundamental drivers supporting their picks in Indian equities.
- In addition to the 10 stocks, Morgan Stanley has also initiated overweight ratings on state-owned financial institutions Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) citing attractive valuations, robust loan growth, and stable asset quality.
- Despite the positive outlook, Morgan Stanley cautions that the road to recovery may not be smooth, but they believe that India will gain share in global output in the coming decades, making it an attractive long-term investment destination, favoring a mix of consumer discretionary, financials, and industrials in India.
