MUMBAI: Global financial services firm Morgan Stanley has reduced its overweight rating on Indian equities to 50 basis points from 150 basis points citing disappointing corporate earnings growth amidst high valuations. Looking ahead, it sees the impact of higher oil prices, the election calendar and the prospects of higher fiscal deficit as obstacles for the market index.
“We cut our overweight in India to 50 basis points, after disappointing earnings season and slowing revisions breadth. Quantitatively, India ranks well on a fundamental basis, but valuations are not particularly cheap and earnings estimate revision while near record highs for India are now lower relative to regional peers,” it said.
Meanwhile, the global investment bank has increased its overweight position on Thailand to 150 basis point from 100 basis point. It has upgraded Singapore to overweight stating that valuations are not demanding while earnings revisions have increased significantly over the last few months. The third quarter earnings growth of India Inc according to Morgan Stanley was weighed down by subdued performance from state-owned banks and oil companies.
Among the listed firms in India, Morgan Stanley is overweight on Tech Mahindra, GAIL India and Cipla as it believes that they are less expensive with high safety score. When it comes to index returns, it noted that MSCI India is down 5.5 per cent year to date in dollar terms while Brazil and Thailand have outperformed with impressive gains of 11.7 per cent and 8.2 per cent respectively.