Bengaluru: Morgan Stanley Costly valuations cut Indian equities from overweight to equal weight on Thursday, 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.
Domestic stock markets have outperformed other emerging markets this year, with the MSCI India Index gaining 27.53 per cent, while the MSCI Emerging Markets Index lost 0.65 per cent.
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 more than 20 per cent 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 has gained nearly 28 per cent this year, crossing the 18,000 mark for the first time. The index fell 1.67 per cent on Thursday and was down more than 3.7 per cent from its all-time high.
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.
Domestic stock markets have outperformed other emerging markets this year, with the MSCI India Index gaining 27.53 per cent, while the MSCI Emerging Markets Index lost 0.65 per cent.
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 more than 20 per cent 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 has gained nearly 28 per cent this year, crossing the 18,000 mark for the first time. The index fell 1.67 per cent on Thursday and was down more than 3.7 per cent from its all-time high.
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