Global brokerage Morgan Stanley has upgraded India to overweight rating. The brokerage in its report said that India has advanced from sixth to first place in its process, with relative valuations less severe than in October, and as foreign direct investment (FDI) and portfolio flows are being supported by multipolar world trends, India is adding a reform and macro-stability agenda that supports a positive outlook for capital expenditure (capex) and profits.
“We see a secular trend toward sustained superior USD EPS (Earnings per share) growth versus emerging market over the cycle, with a young demographic profile supporting equity inflows,” said the brokerage in its report.
Lets take a look at 10 key things Morgan Stanley said about India in its report;
1. India is arguably at the start of a long wave boom at the same time that China may be concluding one, with a GDP per capita of just US$2.5k (vs. US$12.7k for China) and favourable demographic trends.
2. In contrast to China’s abrupt decline, India’s manufacturing and services PMIs have steadily increased since COVID restrictions were lifted.
3. India’s construction and real estate transaction volumes have risen sharply.
4. An important advantage for India is its capacity to take advantage of multipolar world dynamics. Along with the US, Australia, and Japan, it is a member of the Quad political framework.
5.India has benefited from a spike in foreign direct investment (FDI), notably from companies in the US, Taiwan, and Japan that are targeting the country’s sizable domestic market. India is also benefiting from a significantly improved export infrastructure condition with respect to more effective ports, roads, and electrical supply.
6. At the same time as private equity firms are having difficulty with exits in China, they are growing in India (and ASEAN).
7. In contrast to China, where the population of working age has been declining since the beginning of the previous decade, India is seeing a favourable demographic trend.
8. When comparing Indian and Chinese equities in USD terms and using the MSCI Indices as the benchmark, a new era of Indian outperformance vs Chinese performance appears to be coming.
9. China and India’s two markets have very similar performance patterns from 2003 to 2020, outperforming MSCI EM on average. However, India has dramatically broken out to the upside since the beginning of 2021, outperforming China by a factor of almost 100%.
10. According to a sampling of the holdings of 40 global equity funds, global investor positioning is still minimal in both China and India. Only a 25bp weighting is typically assigned to the top three stock positions, which are HDFC Bank, NetEase, and Alibaba. Finding stock leaders that can be included in considerable size in global portfolios continues to be a difficulty for these two markets.
