Investing.com — Morgan Stanley analysts said Indian stocks are positioned for a significant recovery in the coming months, citing multiple factors including trailing performance, valuations, positioning and earnings.
The investment bank noted that India’s 12-month performance is among the worst in its history, while relative valuations have reached previous troughs. India’s share in profits exceeds its index weight by the highest margin on record, and the is trading near its cheapest level ever in gold terms, according to the report.
Foreign portfolio investor positioning has weakened over recent months, while high-frequency data suggests the earnings cycle has resumed, with the exception of conflict-related weakness in March, Morgan Stanley said.
The Reserve Bank of India has shifted sentiment on the rupee, which remains undervalued, the bank added. Policy momentum appears strong and domestic demand has persisted despite a major market drawdown.
Morgan Stanley identified challenges including supply-side issues in gas and fertilizers stemming from the Middle East conflict. The bank expects India to respond to these challenges, which it views as positive for the medium-term economy. Defense spending is likely to increase in coming years, and India’s energy transition may accelerate.
The bank said the lack of direct artificial intelligence exposure remains a persistent challenge, with potential AI disruption to Indian services exports adding to concerns.
Morgan Stanley’s portfolio strategy favors domestic cyclicals over defensives and external-facing sectors, with overweight positions in financials, consumer discretionary and industrials, and underweight positions in energy, materials, utilities and healthcare.
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