Even as the BSE Sensex fell over 1,000 points in the last four sessions, US investment bank Morgan Stanley said it has increased its overweight (OW) stance on the Indian equity market, terming it as its most preferred emerging market.
“Relative economic/earnings growth is improving and the macro-stability setup looks sufficient to withstand the higher real rate environment,” Morgan Stanley said in its latest report. “The ‘DREAM’ run of domestic flows continues and multipolar world dynamics are driving both FDI and portfolio flows toward India,” it said.
“Recent high-frequency trends also support our bullish stance with inflation concerns abating and the trade balance improving,” Morgan Stanley said.
“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,” it said.
Moreover, the previous concerns of a higher inflation causing abrupt changes in monetary policies have somewhat abated after September CPI moderated to 5 per cent and core CPI slowed further to 4.6 per cent, with the team forecasting below 5 per cent in October, Morgan Stanley said.
The trade deficit has also narrowed with service trade balance improving sequentially in September. “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,” it said.
On Friday, global equities fell and oil and gold prices climbed as investors responded to the threat of a weekend escalation that would spread the conflict between Israel and Hamas to the wider Middle East region. The sight of US government bonds yields hitting 5 per cent for the first time since 2007 amid an increasingly threatening conflict in the Middle East left investors searching for safety.
“Nifty fell on October 20 showing persistent weakness. However, it has formed a doji after a fall, suggesting possibility of a bounce,” said Deepak Jasani, Head of Retail Research, HDFC Securities.
The BSE Sensex fell 0.35 per cent, or 232 points, to 65,397.62 and the NSE Nifty Index declined by 82 points to 19,542.65.
Vinod Nair, Head of Research at Geojit Financial Services, said, “The added uncertainty stemming from West Asia tensions and the imperative for continued monetary tightening emphasized by the US Fed Chair created a layer of volatility in the market. While heightened oil prices and elevated US bond yields will impact the domestic monetary environment and operational metrics of the companies.”
Furthermore, the varied results of blue-chip companies, influenced by subdued global & domestic demand, are steering the market towards a consolidation trajectory in the near term, Nair said.
