Morgan Stanley gives India top billing among Asian emerging markets

Global financial powerhouse Morgan Stanley has upgraded India to the ‘overweight’ category, giving it the top rating among Asian emerging markets, while cutting Australia to ‘underweight’. It also put ‘equal-weight’ rating on China and Taiwan and continued with an ‘overweight’ rating on Korea.

A separate report by S&P Global said India’s economy is expected to grow by 6.7% per year from fiscal 2024 to 2031, pushing its GDP to $6.7 trillion from $3.4 trillion in fiscal 2023.

Per capita GDP is projected to rise to about $4,500 from $2,500.
Analysts at Morgan Stanley said that a long upward cycle in India is starting while the same is ending in China. Of the 27 countries tracked by Morgan Stanley’s Asia strategists, India rose to number 1 from number 6 earlier with relative valuations for the country less extreme than in October 2022.
“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 (earnings per share) growth versus emerging markets over the cycle, with a young demographic profile supporting equity inflows,” the report noted.

The bullishness among Morgan Stanley analysts stems from the fact that the economic and market situations in the country are in stark contrast to that in China.

“With GDP per capita only $2.5k (against China’s $12.7k) and positive demographic trends, India is arguably at the start of a long wave boom at the same time as China may be ending one,” states the report.
In India, manufacturing and services PMIs have rallied consistently since the end of Covid restrictions, in contrast to the rapid fade seen in China. Also, “real estate transaction volumes and construction have broken out to the upside. Moreover, India’s ability to leverage multipolar world dynamics is a significant advantage. It is a member of the Quad political framework with the US, Australia and Japan.”
The analysts at the financial major also feel that India is benefitting from a surge in inward FDI as companies from US, Taiwan and Japan are looking at its large domestic market as well as a much-improved export infrastructure situation vis-à-vis more-efficient ports, road and electricity supply. “Simply put, India’s future looks to a significant extent like China’s past.” And “India is rising in the world order with significant positive macro and market implications,” the report noted.
The S&P Global report said the Indian consumer market will more than double by 2031, surging to $5.2 trillion from $2.3 trillion in 2022, according to S&P Global Market Intelligence’s Global Consumer Markets Service.
“This rapid expansion reflects a growing population and increasing household incomes. Consumer spending on food will rise to $1.4 trillion by 2031 from $615 billion in 2022. Spending on financial services will climb to $670 billion from $280 billion. Higher per capita incomes will also likely boost discretionary spending in areas such as entertainment, communications, restaurants and hotels,” according to the report “Look Forward: India’s moment”.
It said services would remain India’s export growth engine. The sector’s share of total exports has already risen to 42% in fiscal 2023 from about 30% in fiscal 2012.