Indian households bid on stocks to sustain for a long time: Morgan Stanley
With reducing dependence of FPI equity flows, India's beta to EM is now down to around 0.6, it said.
NEW DELHI: India's 401(k) moment has created a reliable domestic source of risk capital, foreign brokerage, Morgan Stanley said in a report.
Households continue to be less exposed to equities relative to other asset classes, and we see the domestic bid on stocks being sustained for a long time, like it did in the US from 1980 to 2000.
With reducing dependence of FPI equity flows, India's beta to EM is now down to around 0.6, it said.
The most important catalyst in 2H23 is the market's view on the 2024 general election outcome, foreign brokerage, Morgan Stanley said in a report.
If the Indian electorate chooses a less-favourable political formation in 2024, the equity markets could experience a significant drawdown, foreign brokerage, Morgan Stanley said in a report.
The key risks include slower global growth, tight global liquidity, weather vagaries, worsening of state fiscal position, a rise in commodity prices and relatively rich valuations.
The recent upgrade to OW in APxj/EM market allocation reflects India's growing absolute and relative attractiveness as an equity market, Morgan Stanley said.
Listing three reasons for buying Indian stocks, the brokerage said macro stability and a secular positive BoP are in the offing. Flexible inflation targeting accompanied by rising exports' share and falling oil intensity is creating a benign CAD outlook.
A multi-polar world thesis is driving investment flows (mostly FDI) to India leading to a potential BoP surplus and surplus domestic liquidity.
Thus, India can run a lower rate gap to the world and may also experience lower inflation volatility. Hence, the equity market is experiencing lower return correlation with oil prices, Fed Fund rate changes and US growth.
On strong relative and absolute growth, it said: "We believe we are in a profit cycle that is only halfway through, with profit share in GDP rising from a low of 2 per cent in 2020 to about 4 per cent currently and likely heading to 8 per cent in the coming four to five years. This implies about 20 per cent compounding of earnings growth.
"Underscoring this forecast is the start of new private capex cycle, under-geared balance sheets, a healthy banking system, lower corporate tax rates, improving terms of trade and structural consumption demand outlook offset a tad by likely consolidation in government deficit," it added.
