Mumbai: Financial services firm Morgan Stanley expects Indian equities to outperform emerging markets due to improving macros and corporate earnings growth. The market is recognising Indian macro’s growing stability as evidenced by the 37 per cent fall in the country’s beta in relation to the emerging markets since December 2014 to a 13-year low.
“While global market performance remains a key to the absolute performance of Indian stocks in the near term, India’s beta to the world has dropped to a 13-year low and possibly sets the stage for India’s outperformance in a low-return world.” Morgan Stanley said.
According to it, the government and the RBI have made considerable efforts to improve India’s macro stability since 2013 including fiscal consolidation, positive real rates, active management of food supply to keep prices in check and encouraging a shift in India’s funding mix from FPIs to FDI.
“Thus far, the government has been unmoved on oil taxes, despite significant political pressure to cut them, and has declared a strong commitment to the fiscal deficit,” it added.
While the rise in global oil prices has emerged as a major concern as it would put pressure on India’s fiscal deficit and could also lead to tighter monetary policy, Morgan Stanley however noted that Indian earnings and stocks have historically risen along with a demand-led oil price rise.
“To the extent that rising oil prices is demand led, the deterioration in India's terms of trade is offset by stronger exports,” it said.
