Morgan Stanley India has expressed a positive outlook for the Indian equity markets, anticipating a strong performance in the first half of the upcoming year. Analysts at the firm highlighted that while there may be volatility in the latter half of the year due to the Lok Sabha election, they remain optimistic about India's economic growth and medium-term earnings potential for companies.
The anticipated volatility is linked to market expectations of a majority government being elected. Any unexpected outcomes in the election could lead to significant market fluctuations. Despite these near-term challenges, Morgan Stanley believes that events such as the ICC Men's Cricket World Cup will contribute to a strong December quarter, bolstering economic activity and investor sentiment.
Investors have shown interest in long-term capital allocations in India, although they face challenges with headline valuation. The analysts suggest that even if absolute returns decrease, India's market performance is still notable when compared to global standards. They argued that in the event of a global downturn, India is poised to outperform its peers, and should global growth stabilize, the country could witness an absolute upside.
Morgan Stanley also pointed out that India's investment climate is not directly competing with China's but could benefit from a positive emerging market sentiment led by China's performance. This could potentially enhance investment flows into India.
A significant development noted by the analysts is India's capital expenditure recovery, which is being driven by private investments and the government's focus on infrastructure. This marks a departure from previous governments' policies that were more focused on subsidies and consumption-driven growth strategies. The shift towards investment in infrastructure is expected to underpin the country's economic expansion and provide a foundation for sustained growth in corporate earnings over time.
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