Morgan Stanley stays Overweight on India; ICICI Bank, Gail among top 4 stocks in focus list

Finally! Some good news for emerging markets which witnessed huge foreign money outflows thanks to the rise in the US Dollar. In 2018, a tricky handoff in growth, policy and inflation drove a rolling bear market.

However, for 2019, Morgan Stanley expects a larger turning point in a number of multi-year trends. Emerging Markets (EM) assets should outperform.

The global investment bank thinks that the bear market is mostly over for EM, has further to go in US credit and is about to begin for the US dollar.

Morgan Stanley double has upgraded EM from underweight to overweight and has downgraded US stocks to underweight. It said it likes value over growth and see materials as a top sector. The global investment bank has set target for S&P 500 at 2,750 by end-2019.

Specifically for India, Morgan Stanley maintains an Overweight rating. India should benefit the most from lower oil prices, which alleviate the concerns about a widening current account deficit, it says.

“The RBI is unlikely to hike rates, given the difficulties in the domestic banking sector, while inflation has played in favour of the RBI. Recovering foreign inflows into IGBs should help to flatten the yield curve,” added the note.

Morgan Stanley economist, Upasana Chachra maintains a constructive stance on India’s macro outlook as policy decisions remain supportive of improving the productivity dynamic, with no evident signs of misallocation in the form of higher inflation or deficits.

Key risks stemming from external factors are higher oil prices, a stronger US dollar and consequent tightening in financial conditions, she adds.

There are four Indian stocks in Morgan Stanley Asia Pacific ex-Japan Focus List which include GAIL India, ICICI Bank, L&T, and TCS.


Within the Emerging markets, Morgan Stanley is Overweight on Brazil, Thailand, Indonesia, Peru, and Poland while key Underweights are Australia, Mexico, the Philippines, Colombia, Greece, and UAE.

The global investment bank sees 2019 as a turning point in macros. The world still faces slower growth, higher inflation, and tighter policy, but 2019 should see a turning point in this narrative, specifically in US growth, inflation and policy relative to the rest of the world, it says.

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