Morgan Stanley upgrades India’s economic rating to ‘overweight’; China faces downgrade

Morgan Stanley, a prominent global brokerage firm and investment bank, has upgraded India’s rating to ‘overweight’ while concurrently downgrading China to an ‘equal-weight’ status.

This discernible shift is a reflection of Morgan Stanley’s nuanced evaluation of the prevailing economic landscape in the two Asian powerhouses.

Morgan Stanley upgrades India

The decision to elevate India’s rating can be attributed to a confluence of factors. Morgan Stanley’s analysis indicates that India’s relative valuations have moderated since October, positioning the nation’s reform-oriented and macro-stable agenda as a pivotal driver for robust capital expenditure and profit projection.

A crucial highlight of this upgrade is the positive trajectory of foreign direct investment (FDI) and portfolio flows, reinforced by India’s unwavering commitment to reform measures and the maintenance of macroeconomic stability. The report underlines the country’s potential for sustaining superior USD EPS growth when compared to its counterparts within the emerging markets.

This optimism is further buoyed by India’s youthful demographic profile, which is anticipated to contribute to a surge in equity inflows.

Morgan Stanley downgrades China, Taiwan

On the other hand, Morgan Stanley’s assessment of China’s economy led to a downgrade of its rating to ‘equal-weight’. This adjustment underscores the brokerage firm’s counsel to investors to exercise prudence, given the recent upswing fuelled by government stimulus initiatives.

The analysts at Morgan Stanley have voiced reservations about the sustainability of China’s stock market gains in light of the anticipated gradual pace of the nation’s easing measures. They highlight several areas of concern, including the debt associated with local government financing vehicles (LGFVs), the dynamic property and labour markets, and the influence of geopolitical factors. These challenges collectively pose potential headwinds to China’s future inflows and prospects for re-rating.

In a parallel development, Morgan Stanley also decided to reassign Taiwan an ‘equal-weight’ rating. This adjustment stems from the brokerage firm’s observation of stretched valuations in the technology sector, spurred by a recent market rally.