Morgan Stanley’s Ridham Desai gives 3 reasons to own Indian stocks

economictimes.indiatimes.com:

Morgan Stanley upgrading the rating on Indian equities to “overweight” and moving it to the 1st position in the basket of Asian emerging markets ex-Japan. The ratings upgrade reflects India’s growing absolute and relative attractiveness as an equity market, according to Ridham Desai, managing director at the global investment firm.

Desai highlighted three major reasons for owning Indian stocks, while turning less favourable on China.Macro stabilityThe flexibility available with the central bank for targeting inflation, coupled with rising share of exports and easing oil prices have led to a benign outlook for the country’s CAD or current account deficit, according to Desai. The investment bank sees the possibility of India experiencing lower volatility in inflation compared to world economies.

Hence, the equity market is experiencing lower return correlation with oil prices, US Fed’s interest rate changes and US growth. Strong relative and absolute growth Desai believes India is in a profit cycle that is only halfway through, with the profit share in GDP rising to 4% from a low of 2% in 2020.

This is likely heading to 8% in the next 4-5 years, implying about 20% compounding growth in earnings. The beginning of a new private capex cycle, strong balance sheets, healthy banking system, improving terms of trade and structural consumption demand outlook are the factors driving the earnings outlook of the investment bank.

India's domestic source of risk capital While household savings continue to be less exposed to equities relative to other asset classes, Morgan Stanley sees the domestic bid on stocks being sustained for a long time, like it did in the US from 1980 to 2000. With reducing dependence on inflows from foreign