The country’s relative economic/earnings growth is improving and the macro situation is good enough to handle the high real rate environment, the brokerage said in a report.

India is Morgan Stanley’s most preferred market, with the brokerage increasing its overweight (OW) stance on the country.

The country’s relative economic/earnings growth is improving and the macro situation is good enough to handle the high real rate environment, the brokerage said in a report.

“The ‘DREAM’ run of domestic flows continues and multipolar world dynamics are driving both FDI and portfolio flows towards India. The recent high-frequency trends also support our bullish stance, with inflation concerns abating and trade balance improving,” it added.

The brokerage sees a strong case of a market upgrade and remains structurally bullish on Indian equities. According to its India Economics Team, projects under implementation have seen broad-based growth and PMI manufacturing remains “in the expansionary zone since July 2021”, thanks to strong domestic demand.

MSCI EM equities have fallen 10% since July 28, retracing half oftheir gains from October 2022, it pointed out. It sees the market at a crucial juncture, given the negative earnings revisions and a challenge to valuations from rising geopolitical risks and 10-year US real yields.

Not only that, concerns over the high inflation environment causing changes to monetary policies have somewhat eased following a moderation in the CPI data in September to 5% and core CPI to 4.6%.

It also emphasised on the narrowing trade deficit with service trade balance improving sequentially in September. With India structurally outperforming the MSCI EM index by 45.5% in dollar terms from early 2021 until October 2022 — it expects outperformance to continue, with India starting to show a material breakout in relative earnings per share vis-a-vis emerging market peers, with relatively low correlation/revenues from both the US and China.

Among others, Singapore and Poland were also upgraded to OW. It said that Singapore is “typically more defensive in EM bear markets”, with strong earnings/profitability trends, while the likelihood of a new coalition government in Poland is a positive in terms of unlocking additional EU funds. It also downgraded Korea and the UAE to equalweight.

Besides India, which remains the top pick and OW, Singapore and Poland rank second and fifth and OW. The UAE and Korea slip to 10th and 16th and equal weight, while Malaysia moved up to 14th. Meanwhile, Egypt slipped to 27th and was underweight.

https://www.financialexpress.com/policy/economy-morgan-stanley-upgrades-india-to-standout-overweight-market-3282605/