New Delhi, Oct 20: Foreign brokerage, Morgan Stanley has increased the overweight stance on India as the most-preferred EM market.
Recent high-frequency trends also support the bullish stance with inflation concerns abating and the trade balance improving.
The report highlighted risks for Asia/EM equities given rising real rates, geopolitical uncertainty and narrowing market leadership. We reduce beta, downgrading Korea and UAE to EW, while upgrading Singapore and Poland to OW and Malaysia to EW. India and Japan remain top picks, Morgan Stanley said.
MSCI EM equities have fallen to 10 per cent since July 28, retracing half of their gains from October 2022. We see the market at a crucial juncture given still negative earnings revisions (exacerbated by USD strength) and a challenge to valuations from rising geopolitical risks and 10-year US real yields (re-testing their post-2007 highs of 2.5 per cent) for a volatility-based framework exploring risks for the asset class.
“We remain structurally bullish on India with the key thesis of our market upgrade intact. Our India Economics Team’s recent tracker shows projects under implementation have recorded broad-based growth and PMI manufacturing remains in the expansionary zone since July 2021, likely driven by strong domestic demand amid a broad external weakness.
“The trade deficit has also narrowed with service trade balance improving sequentially in September,” Morgan Stanley said.
India has been structurally outperforming MSCI EM by 45.5 per cent (in USD terms) from early 2021 until October 2022, and we expect outperformance to continue, with India starting to show a material breakout in relative EPS versus EM and having relatively low correlation/revenues from both the US and China, the report said.