Morgan Stanley downgrades Indian status equities Overweight to par-weight on Thursday due to expensive valuations, and said it expects the market to strengthen ahead of potential “short-term headwinds”.
The brokerage said the country’s key fundamentals are positive, at 24x price-to-earnings, Indian equities may see some consolidation ahead of Fed tapering, a possible rate hike by India’s central bank in February and higher energy costs.
Morgan Stanley’s downgrade follows similar moves by Nomura and UBS over expensive valuations. Indian stocks have outperformed other emerging markets strongly this year, with the MSCI India Index rising 27.53% compared to a 0.65% decline in the MSCI Emerging Markets Index.
Morgan Stanley unanimously attributed the better performance to an uptick in earnings expectations and a “favourable” government reform agenda.
The brokerage, in an earlier report, had said that India’s earnings could grow by over 20% per annum over the next three-four years as a result of early signs of capex, supportive government policy and a strong global growth outlook.
Morgan Stanley said, “While fundamental leading indicators are positive, we see valuations as increasingly limited returns over the next 3-6 months.”
The blue-chip NSE Nifty 50 index is up nearly 28% this year, crossing the 18,000 mark for the first time. The index fell 1.67% on Thursday and was down more than 3.7% from its all-time high.
This story has been published without modification in text from a wire agency feed. Only the title has been changed.
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