India emerges as top pick among emerging markets, says Morgan Stanley

Following a sustained period of economic growth and earnings improvement, Morgan Stanley has elevated India to “standout overweight”, ranking it ahead of other emerging economies such as Singapore, Greece, Mexico, and Poland. The investment bank’s decision reflects India’s resilience in the face of higher real rate scenarios and its impressive performance on the global equity investment scale, where it scored 68.

India’s position as a top pick is bolstered by its structural outperformance against the MSCI EM index by 45.5% since 2021. This performance has been attributed to its relative EPS versus EM and low revenue correlation with the US and China.

Morgan Stanley’s bullish view is also supported by high-frequency trends. Inflation concerns in India have been reducing after September’s Consumer Price Index (CPI) moderated to 5%. Additionally, there was a sequentially improved service trade balance in September.

The report also highlighted growth in projects under implementation and a sustained expansion of the Purchasing Managers’ Index (PMI) manufacturing since July 2021. This expansion is attributed to strong domestic demand despite broad external weakness.

The bank’s upgrade comes amid a “dream” run of domestic flows and multipolar world dynamics, which have caused both Foreign Direct Investment (FDI) and portfolio flows to gravitate towards India. Outside of India, only Japan holds an overweight stance in Asia according to Morgan Stanley.

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