All of this will take place courtesy of robust population growth, a functioning democracy, macro stability-influenced policy, better infrastructure, a rising entrepreneurial class and improving social outcomes, Desai wrote in his note.
For the immediate term, Desai believes that the market is not yet convinced that the soft earnings patch, which began from the September quarter of the previous financial year, is coming to an end.A final trade deal with the US, more capex announcements, acceleration in loans, uniform improvement in high frequency data and improving trade with China could act as further catalysts for this market. Morgan Stanley continues to maintain its view that India will be an outperformer in a global bear market, but underperform in a bull market.
Downside risks from slowing lobal growth and worsening geopolitics, coupled with a rise in oil prices, can be potential headwinds for the markets, according to Desai’s note.
Here’s how Morgan Stanley is positioned across various sectors:
- Consumer Discretionary (300 basis points overweight): Expect a recovery in urban demand to aid overall consumption demand.
- Industrials (300 basis points overweight): Strong government capex and a nascent pick-up in private capex keeps them overweight.
- Financials (200 basis points overweight): Peaking short rates, higher credit growth, and low credit costs imply outperformance for financials, especially for non-bank lenders.
- Utilities (100 basis points underweight): Underweight given the sector’s lack of cyclicality.
- Energy (200 basis points underweight): Prefer domestic cyclicals over global cyclicals.
- Healthcare (200 basis points underweight): Avoiding defensive sectors.
- Materials (300 basis points underweight): Prefer domestic materials over global. In addition, they take exposure cyclically via material.
Morgan Stanley remains Equalweight (Neutral) on communication services, consumer staples and technology.
