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Morgan Stanley has upgraded India to ‘Overweight’ while downgrading China’s rating to ‘Equal-weight’

A team of Asia strategists at Morgan Stanley raised India's rating based on several factors. They noted that relative valuations for India are now "less extreme" compared to the situation in October last year. Additionally, they highlighted the positive impact of India's reform and macro-stability agenda, which is supporting a robust outlook for capital expenditure (capex) and profits in the country.

By Rekha Joshi 
Updated Date

The Asia strategists at Morgan Stanley believe that India’s relative valuations are now “less extreme” than they were in October last year. Additionally, India’s reform and macro-stability agenda support a positive outlook for capital expenditure (capex) and profits.

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They highlighted that the trends of a multipolar world are leading to increased foreign direct investment (FDI) and portfolio flows, with India’s focus on reforms and macro-stability providing a strong foundation for capex and profit growth. The country’s young demographic profile is also attracting equity inflows.

On the other hand, Morgan Stanley downgraded China’s rating to ‘Equal-weight’ due to concerns related to easing measures. While the Chinese government announced stimulus packages to bolster the market, analysts at the brokerage house believe that these measures may come piecemeal and may not be sufficient to sustain the market gains.

The report points out that India, with its GDP per capita of $2,500 (compared to China’s $12,700) and positive demographic trends, may be at the beginning of a long-term boom, while China might be experiencing the end of one.

Morgan Stanley strategists consider the beginning of a new era of Indian outperformance compared to China in USD terms. Since early 2021, India has significantly outperformed China by over 100% in terms of MSCI Indices benchmark.

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The brokerage believes that India’s structural shift towards outperformance warrants an ‘Overweight’ rating, while China may face headwinds and is downgraded to ‘Equal-weight.’

The report also mentions that valuations somewhat reflect the market’s understanding of this structural change, with India’s favor somewhat overshot last October. Overall, the current framework suggests that India’s ‘Overweight’ rating is justified, while downgrading China’s rating to ‘Equal-weight’ is appropriate.

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