Morgan Stanley has India as overweight in its portfolio

As India is just at the inception of a lengthy wave boom, which China is about to end, brokerage company Morgan Stanley has upgraded India to overweight.

Just four months prior, on March 31, the firm had raised India from underweight to equal-weight, citing a shrinking valuation premium and a stable economy.

Within the Asia Pacific Ex-Japan and Emerging Markets basket, India has now become the primary overweight market for Morgan Stanley. Since their peak last October, India's valuation premiums over China and Emerging Markets have dramatically decreased and are now beginning to increase once more.

"We upgrade India to overweight for secular leadership. We see a secular trend towards sustained superior USD EPS growth versus Emerging Markets over the cycle with a young demographic profile supporting equity inflows," the note said.

According to the note from Morgan Stanley, India's future resembles China's history to a large extent. In comparison to India's 6.5 percent GDP growth, the brokerage anticipates China's GDP to expand by only 3.9 percent by the end of the decade.

"Our call last October for the beginning of a new bull market in Asia / EM equities is increasingly priced with MSCI EM up 24 percent since the late October trough," Jonathan Garner of Morgan Stanley wrote in a note.

According to Morgan Stanley, these are the things that have radically changed in India:

Structural Reforms over the past few years are finally beginning to pay off

Unlocking previously stalled growth prospects

Supply-side policy reforms, such as PLI and corporate tax cuts

Accelerated infrastructure development

Economy formalization and regulation.

An unexpected rise in inflation and changes in monetary policy are two major downside risks for the Indian market, particularly if productivity growth is slow. "Another concern is more structural, as AI may be disruptive for India's services export and the labor force generally, although we will monitor the impact closely," Morgan Stanley's note said.

Apart from the financials and consumer discretionary companies, which were previously overweight for the brokerage, the industrials sector in India has also been upgraded to overweight. "We expect these three sectors will be the major beneficiaries of India's structural story," the note said.

Larsen & Toubro and Maruti Suzuki, two Indian companies, have been added to Morgan Stanley's priority list for the Asia-Pacific Ex-Japan region, while Titan has been dropped. Additionally, the GEM focus list now includes L&T and Maruti.

Source: Media Reports