L&T And SBI Cards To Jubilant: Here Are Morgan Stanley's Long-Term India Picks
Having downgraded Indian equities late last month, Morgan Stanley said the positives in the domestic market "outweigh the risks for those willing to take a slightly longer term view". And it's betting on select cyclical, consumption and industrial picks.
India remains entrenched in a long-term bull market driven by a likely new profit cycle, the research firm said in a Nov. 10 note. However, its relative performance to emerging markets could pause given "strong trailing performance and relative valuations".
That had prompted Morgan Stanley to downgrade the Indian market to 'equal-weight' from 'overweight'. And it followed similar action by Nomura and UBS as domestic benchmarks hover just below all-time highs and trade at a premium over emerging market peers.
In the latest note, Morgan Stanley, however, flagged long-term positives for domestic stocks. These include multiple sources of capital expenditure, including energy transition, the internet, supportive government policy, strong export growth, robust growth outlook, fixed income flows, new high-quality listing and the opening up of debt capital markets.
"We are pursuing ideas under clean energy spend, defence indigenisation, a new residential property, auto, air travel cycle, multi-year credit cycle for non-banks and banks," it said, among several other themes.
Morgan Stanley prefers selective stock-picking over macro investing, cyclicals over defensives, and large caps over small caps. "We are backing financials, cyclical consumption and industrials and are relatively cautious on export sectors."
The brokerage cited volatile U.S. interest rate cycle, relative price of crude to copper, a supply-constrained rise in oil prices and a third wave of Covid-19 as risks.
It also expects the Reserve Bank of India to narrow the policy rate corridor with a reverse repo hike, which could precede the policy rate increase.