Morgan Stanley: India Market Upgraded to 'Overweight'

Facts

On Wednesday, Morgan Stanley upgraded its evaluation of Indian markets, moving the nation from the “equal weight” category to “overweight,” which suggests the brokerage firm believes that India’s economy will perform well in the future.¹
Increased foreign inflows, macro stability, and a positive earnings outlook contributed to India becoming the highest-rated emerging market, rising from sixth place in October. India’s population and young demographic profile have supported Morgan Stanley’s bullish views.²
Morgan Stanley remains overweight on India’s financials, consumer discretionary, and industrial segments, while it gave an “add” rating to Larsen & Toubro and Maruti Suzuki India on their Asia Pacific focus and Global Emerging Markets list.³
The firm also praised India’s structural reforms that spurred market-driven growth, including corporate tax cuts, production-linked incentive (PLI) schemes, and regulation and formalization of the economy. It added that India is poised to grow GDP by 6.2%.⁴
India’s latest upgrade comes just four months after Morgan Stanley upgraded it from underweight to equal weight on March 31. Meanwhile, China has seen its status downgraded from overweight to equal weight.⁵
The firm is worried about potential US restrictions on Chinese technology and isn't satisfied with the country's recovery from the COVID pandemic. However, it didn't rule out a higher rating for China in the future.⁶

Anti-China narrative, as provided by The Economic Times. While upgrading its evaluation of Indian markets, Morgan Stanley also downgraded China’s, suggesting there may be a new growth leader in Asia. India’s profile has striking similarities to what China used to have when it started its path to unprecedented growth. India’s population and pro-growth policies will allow it to outperform China in many key categories while China suffers from its botched COVID recovery and aging population.
Pro-China narrative, as provided by Project Syndicate. While India may be the hot and exciting emerging market with the world’s population, it's pretty easy to see why its economy will never overtake China’s. Despite starting with similar populations and per capita incomes in the 1980s, China and India have seen drastically different economic outcomes over the last 40 years. That can be boiled down to China’s profound commitment to education and technology. China is so far ahead of India in both fronts that it would be impossible for the South Asian nation to catch up.