Morgan Stanley Upgrades India's Status To 'Overweight', Downgrades China

Morgan Stanley has upgraded its view on India's markets to "overweight" from "equal weight" as it believes that the nation's reform and macro-stability agenda supports a strong capex and profit outlook. A overweight rating means that the firm expects India's economy to perform better in the future. The upgrade in the backdrop of US losing AAA status and economic slowdown in China.

India's macro indicators remain resilient, and the economy is on track to achieve the 6.2% GDP forecast, said the brokerage firm. India, it said, is now the top ranked, most-preferred market among emerging markets (EMs), rising from the sixth spot, due to supportive foreign inflows, macro stability and positive earnings outlook.

"India rises from 6 to 1 in our process, with relative valuations less extreme than in October, and India's ability to leverage multipolar world dynamics is a significant advantage," Morgan Stanley analysts said.

The firm also cut its rating on Chinese stocks to equal weight, saying investors should capitalise on a rally spurred by government stimulus pledges to take profits.

"India is arguably at the start of a long wave boom at the same time as China may be ending one," the report added.

"We think returning India to an 'overweight' rating and downgrading China to 'equal weight' is warranted.

Chinese assets have got a boost in recent days amid a slew of promises from Beijing to spur growth and revitalise the nation's flagging private sector. But easing measures are likely to come piecemeal, analysts at the bank wrote in a report, which may not be enough for shares to sustain gains.

The latest upgrade comes just months after Morgan Stanley moved up India from underweight to equal weight citing a resilient economy.