India's Rating Upgraded To 'Overweight' By Morgan Stanley, China's Downgraded To Equal Weight

Morgan Stanley has upgraded India's outlook to 'overweight,' indicating their prediction that the country is entering a long-wave boom.

This upgrade comes after the firm previously upgraded India's outlook from underweight to equal weight only four months ago.

An 'overweight' outlook from Morgan Stanley suggests that they expect India's economy to perform well in the future.

According to a note from Morgan Stanley, India's macro indicators remain strong, and the country is on track to achieve a GDP forecast of 6.2 per cent.

Morgan Stanley highlights several fundamental changes in India, including structural reforms, supply-side reforms such as corporate tax cuts and production-linked incentive (PLI) schemes, and increased regulation and formalization of the economy.

According to Morgan Stanley analysts, there is a noticeable shift towards consistent and strong earnings per share (EPS) growth in India compared to other emerging markets (EMs).

This trend is supported by a young demographic profile, which is attracting more equity inflows.

In addition to upgrading India, Morgan Stanley also downgraded China to an equal weight rating. They advised investors to take advantage of the rally in China's market, driven by government stimulus promises, to secure profits.

Morgan Stanley analysts believe that it is appropriate to upgrade India to an "overweight" rating while downgrading China to an "equal weight" rating.

They see India's outperformance over China as a sign of a structural shift in favor of New Delhi.

The firm has predicted that the BSE benchmark index, Sensex, will reach 68,500 points by December. According to their analysis, Sensex will trade at a price-to-earnings multiple of 20.5 times, slightly higher than the 25-year average of 20 times.

Morgan Stanley's outlook suggests that the premium over the historical average reflects a greater confidence in medium-term growth. This indicates a positive outlook for the market.

Morgan Stanley's target for Sensex is based on several factors, including the expectation that there will be no major upward movements in commodity prices, the US economy avoiding a recession, and the Reserve Bank of India maintaining a pause in its repo rate hikes.