Brokerage firm Morgan Stanley has upgraded India's status to 'overweight', observing that the third largest economy of Asia is poised for a sustained economic growth and better performance with resilient macro indicators even when the rest of the world is slowing down, according to media reports.
It has downgraded its rating on China to 'equal-weight'.
“Multipolar World trends are supporting FDI and portfolio flows, with India adding a reform and macro-stability agenda that underpins a strong capex and profit outlook. We see a secular trend toward sustained superior USD EPS growth versus EM over the cycle, with a young demographic profile supporting equity inflows," the Morgan Stanley report said.
India's macro indicators remain resilient, and the economy is on track to achieve the 6.2% GDP forecast, the firm said, according to an NDTV report quoting the Morgan Stanley analysis. The upgrade comes months after Morgan Stanley moved up India from underweight to equal weight for its resilient economy.
"India rises from 6 to 1 in our process, with relative valuations less extreme than in October, and India's ability to leverage multipolar world dynamics is a significant advantage," Morgan Stanley analysts said.
"India is arguably at the start of a long wave boom at the same time as China may be ending one," the report added.
According to Mint, the brokerage firm downgraded its rating on Chinese stocks saying investors should take profits and capitalize on a rally led by stimulus packages announced by the government.
"The July Politburo meeting signalled policy easing, but key issues including LGFV debt, the property and labour markets and the geopolitical situation need to improve significantly, in our view, for sustainable inflows and further re-rating," analysts at Morgan Stanley wrote.
“Relative valuations have become less extreme compared to last October, contributing to this meteoric rise," the report said adding that the ongoing trend of a Multipolar World is driving foreign direct investment (FDI) and portfolio flows, and India's reform-oriented and macro-stable agenda strengthens its prospects for robust capital expenditure (capex) and profitability outlook.
It has also made specific sector upgrades for India, including industrials, financials, and consumer discretionary stocks, which are now rated as 'overweight', according to NDTV. It expects these sectors to be major beneficiaries of India's ongoing structural growth story.
"Despite the positive outlook, Morgan Stanley's note highlights several key downside risks for the Indian market. Unexpected inflation surges and changes in monetary policies could have adverse effects, particularly if productivity improvements do not keep pace, the report said. Moreover, the potential disruptive impact of artificial intelligence on India's services exports and the labor force is also something to track closely," the NDTV report said.