Morgan Stanley’s Chief Asia Equity Strategist Jonathan Garner
explains why Indian equities are our most preferred market in
Asia.
Read more insights from Morgan Stanley.
----- Transcript -----
Welcome to Thoughts on the Market. I’m Jonathan Garner, Morgan
Stanley’s Chief Asia Equity Strategist. Today I’ll discuss why we
remain positive on India’s long-term equity story.
It’s Tuesday, the 24th of June at 9am in Singapore.
We’ve had a long-standing bullish outlook on the India economy
and its stock market. In the last five years MSCI India has
delivered a total return in U.S. dollars of 145 percent versus 94
percent for global equities and just 39 percent for emerging
markets. Indian equities are our most preferred market within
Asia for three key reasons. First, India’s superior economic and
earnings growth. Second, lower exposure to trade tariffs. And
third, a strong domestic investor base. And all of this adds up
to structural outperformance not just in Asia but indeed
globally, and with significantly lower volatility than peer group
markets.
So let’s dive deeper. To start with – the macroeconomic backdrop.
We expect India to account for 20 percent of overall incremental
global GDP growth in the coming decade. Manufacturing
competitiveness is improving thanks to bolstered infrastructure
in power, ports, roads, freight transport systems as well as
investments in social infrastructure such as water, sewage and
hospitals.
Additionally, India's growing middle class offers market
opportunities to companies across many product categories.
There’s robust domestic consumption, a strong investment cycle
led by public and private capital expenditure and continuing
structural reforms, including in the legal sphere. GDP growth in
the first quarter was more than 7 percent and our team expects
over 6 percent in the medium term, which would be by far the
highest of the major economies.
Furthermore, we continue to expect robust corporate earnings
growth. Since the end of COVID, MSCI India has delivered around
12 percent per annum [U.S.] dollar earnings per share growth
versus low single digits for Emerging Markets overall. And we
forecast 14 percent and 16 percent over the next two fiscal
years. Growth drivers in the short term include an emerging
private CapEx cycle, re-leveraging of corporate balance sheets,
and a structural rise in discretionary consumption
– signaling increased business and consumer confidence,
after last year’s elections.
Another key reason that we’re positive on India currently is its
lower-than-average vulnerability to ongoing trade and tariff
disputes between the U.S. and its trade partners. Exports of
goods to the U.S. amount to only 2 percent of India’s GDP versus,
for example, 10 percent in Thailand or 14 percent in Taiwan. And
India’s total goods exports are only around 12 percent of GDP.
Moreover, for the time being, India’s very large services
sector’s exports are not exposed to tariff actions, and are
actually early beneficiaries of AI adoption.
Finally, India’s strong individual stock ownership means that
there’s persistent retail buying, which underpins the equity
market. Systematic Investment Plan (SIP) flows driven by a young
urbanizing population are making new highs, and in May amounted
to over U.S.$3 billion. They provide consistent capital inflows.
That means that this domestic bid on stocks is unlikely to fade
anytime soon.
This provides a strong foundation for the market and supports
valuations which are slightly above emerging market averages. It
also means that its market beta to global equities are low and
falling, approximately 0.4 versus 1.1 ten years ago. And price
volatility is well below other emerging markets. All told,
making India an attractive play in volatile times.
Thanks for listening. If you enjoy the show, please leave us a
review wherever you listen and share Thoughts on the Market with
a friend or colleague today.
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