Indian stock markets have outperformed other emerging markets this year and Morgan Stanley expects this outperformance to continue.
“We have been arguing that for this outperformance to be sustained, India needs to continue to deliver policy that lifts India’s potential growth in the eyes of market participants,” said Morgan Stanley analysts Ridham Desai, and Sheela Rathi in their note.
Morgan Stanley expects Indian stocks to outperform
“Indian companies have used the pandemic dislocations to prepare for the next growth cycle by cutting costs (earnings coming ahead of expectations), raising capital to either boost growth or mitigate tail risks and undertaking mergers, acquisitions and restructuring,” they said in the note. The analysts see Indian stock markets’ valuation attractive as compared to other emerging markets.
India’s Nifty 50 benchmark index is currently trading at an NTM (next-12 month) price to earnings multiple of 25.5x which is ahead of the long-term averages. However, most stock markets globalys are trading at a premium valuation based on the NTM numbers as the pandemic would take a toll on the earnings in the near term. Once the pandemic is addressed, corporate earnings should bounce back near normalized levels and the valuation multiples would revert back to their long term averages.
The analysts are bullish on the consumer discretionary, industrial, and energy sectors. However, they are underweight on technology and consumer staples stocks.
Indian stock markets in 2020
Looking at ETFs that invest in Indian stock markets, the iShares MSCI India ETF is down only 1.1% so far in 2020. In contrast, barring the US and Chinese stock markets almost all other major stock markets globally are deep in the red this year. In the case of US, massive fiscal and monetary stimulus has lifted the markets. As for China, the country has controlled the pandemic and has resumed normal business activity unlike the rest of the world that is still trying to contain the virus that originated in China only.
Pandemic has been easing
While India is currently the second worst affected country from the COVID-19 pandemic in terms of the total number of cases, its daily cases have fallen sharply from the September highs. This is unlike the US and Europe where cases have recently increased after the economies were reopened.
Many regions in Europe are contemplating bringing back the lockdowns again in a bid to control the spread of the infections. While the shutdowns might help in controlling the spread of the virus, they also come with an economic cost and many small businesses have been crippled by the shutdowns. Indian economy contracted almost 24% in the fiscal first quarter that ended in June as the country imposed among the strictest lockdown.
The Canadian pension fund is also betting on India
Canada Pension Plan Investment Board (CPPIB) that had around $330bn assets as of 30 June also plans to invest a big chunk of its assets in Indian stock markets. We expect to invest up to one third of the Fund in emerging markets by 2025 and India is a key component of that,” said Suyi Kim, CPPIB’s Asia Pacific head last month.
Andrew Tilton, chief Asia economist at Goldman Sachs is predicting a faster economic recovery in Asia as the region has better controlled the coronavirus pandemic
Can you invest in Indian stock markets?
Some of the brokers let you trade in Indian stock markets. You can select from any of the best online stock brokers. You can also invest in emerging market indices through binary options. There is a list of some of the best binary options brokers.
If you are not well versed in investing in stocks and still want to have exposure to Indian stock markets you can consider ETFs. There are ETFs that give you exposure to a basket of emerging market stocks as well as those focused on Indian stock markets
By investing in an ETF, you get returns that are linked to the underlying index after accounting for the fees and other transaction costs. There is also a guide on how to trade in ETFs