India's Decade: Morgan Stanley Bets On Equity Inflows Supported By Youth
Morgan Stanley's note points out that India and Japan are still top picks in a new era for for Asian equities.
The bullish outlook on India is set to extend supported by strong foreign inflows and macroeconomic stability, according to report put out by Morgan Stanley.
It is 'India's decade', the brokerage said. That is because of the secular trend towards sustained superior earnings per share or EPS growth, with a young demographic profile supporting equity inflows, it said in a March 20 note.
Consistent foreign direct investments with positive demographics and success in macro-stability underpin a strong capex and profit outlook for the country, the brokerage said.
Although domestic market valuations are at a premium, they warrant a superior earnings per share CAGR, Morgan Stanley said. "The beginning of a new long-run trend in favour of India was in early 2021."
Since 2021, India has gained 5% in the MSCI All Country Asia Pacific Index weight at the expense of China, the brokerage said. Meanwhile, Japan and Australia gained 3% and 2%, respectively. In contrast, China saw its share decline by 10% during the same period.
India still has substantial room to run given the lower debt-to-GDP ratio compared to other Asian countries, Morgan Stanley said. China, on the other hand, is highly leveraged, mainly through local government financing vehicles (LGFV) and state-owned enterprise (SOE) debt.
Apollo Hospitals Enterprise Ltd., DLF Ltd., ICICI Bank Ltd., Maruti Suzuki India Ltd., and Reliance Industries Ltd., remain part of the Morgan Stanley global emerging markets (GEM) focus list. It has an overweight rating in all of these companies.
Morgan Stanly On Other Asian Countries
The research firm is positive on Korea and Taiwan with semiconductor and AI-related demand. Morgan Stanley is bullish on the financial space in India, Indonesia, and Singapore.
The Bank of Japan's policy normalisation is a welcome sign underpinning official confidence that Japan’s macro outlook has improved, it said.
China's return on equity has fallen steadily in recent years and earnings have missed for nine straight quarters, Morgan Stanley said.
Although macro data is marginally better so far in 2024, Morgan Stanley believes more proactive countercyclical measures are needed to boost demand.
