Global brokerage Morgan Stanley has upgraded India to an overweight rating in its latest report. India has surged its rank from sixth to first, with more favourable valuations than in October. The country benefits from foreign direct investment (FDI) and portfolio flows bolstered by multipolar world trends. India’s reform and macro-stability agenda supports a positive outlook for capital expenditure (capex) and profits. Morgan Stanley sees a sustained superior USD EPS (Earnings per share) growth trend in India, with a young demographic profile attracting equity inflows.
The report highlights several key factors that favour India’s rise. Firstly, India is beginning a potential long-wave boom, while China may be concluding one. India’s manufacturing and services PMIs have shown steady growth since lifting COVID restrictions, unlike China’s abrupt decline. Construction and real estate transaction volumes in India have surged, and the country has the advantage of leveraging multipolar world dynamics through its participation in the Quad political framework with the US, Australia, and Japan. FDI has increased significantly, with US, Taiwan, and Japanese companies targeting India’s domestic market. The nation’s export infrastructure has also improved, supporting its global competitiveness.
Morgan Stanley’s upgrade comes four months after India was shifted from underweight to equal weight. The brokerage firm attributes the change to structural and supply-side reforms, such as corporate tax cuts and production-linked incentive schemes. They predict the Sensex to reach 68,500 by year-end, trading at a price-to-earnings multiple of 20.5 times, reflecting confidence in medium-term growth.
On the other hand, the brokerage has downgraded Chinese stocks to equal weight, recommending investors capitalise on the rally driven by government stimulus. However, concerns persist over China’s structural challenges, including local government issues and unemployment, which are yet to be addressed.
Morgan Stanley emphasises India’s potential for sustained outperformance compared to Chinese equities in USD. The brokerage upgraded India’s industrial sector to overweight, adding Larsen & Toubro and Maruti Suzuki to its focus list.
As India’s economy shows signs of noticeable growth and structural reforms, investors are keen to explore emerging opportunities in the country. Morgan Stanley’s bullish stance on India and cautious approach to China indicate the changing dynamics of the global investment landscape.
