Indian market in a sweet spot: Morgan Stanley

Mumbai: Global investment bank Morgan Stanley on Tuesday said that the Indian equity markets are in a sweet spot with a likely sharp decline in interest rates and improvement in growth backed by rising government expenditure. The global investment major is currently overweight on Indian equities and expects the markets to deliver a 20 per cent return over the next 12 months.

“Corporate balance sheets are healing as evident in improving credit ratings. Domestic households will likely become big savers in equities incrementally in the coming months. Equity supply is likely to be materially higher in the second half of CY15. Even as the markets look fair or better than fair on valuations relative to bonds and emerging markets, an upturn in the earnings cycle and falling rates will likely support valuations,” said Ridham Desai, head of Indian equity research, Morgan Stanley. He further added that there would be a six-fold increase in household money coming into the equity markets over the next 10 years.

“This will be a major driver of the equity markets in the longer term,” he said. According to Morgan Stanley estimates, household savings worth $300 billion would flow into domestic equity markets over the next 10 years as compared to $50 billion and $134 billion invested by households and FII’s respectively over the previous 10 years. Mr Desai also pointed out that genuine long-term investors are still bullish on the Indian markets and they are in no hurry to exit India despite sitting on huge profits. “However, some of those funds are now investing in the Chinese equity markets,” he added.