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Morgan Stanley India strategy: HDFC twins, ITC and ICICI Bank among top picks

Updated : January 16, 2020 01:19 PM IST

Morgan Stanley's top value and growth picks comprise Bharti Airtel, ITC, HDFC and HDFC Bank, ICICI Bank, MCX, Motherson Sumi, Gujarat Gas and NTPC.

The global brokerage has selected M&M Financials, Shriram Transport, Indian Hotels and BEL among midcap stock ideas.

India's economic growth will likely improve in 2020, according to Morgan Stanley. The key factors to watch out for are improved corporate savings, accelerated government spending, an uptick in exports and better-operating margins, the global brokerage said in a research report.

That said, a key challenge going forward into 2020 is risk aversion in the financial system and complacency in policy action, analysts at Morgan Stanley said in the report.

In fact, "bad macro news" pushed policymakers to take decisions on an accelerated basis as well as a prolonged accommodative monetary policy, the report said.

"...India may have put in a growth trough in the quarter gone by. We enter 2020 with optimism that growth will likely improve," the report said.

Morgan Stanley further expects policy action to push transfer of resources from the public sector to the private sector through personal tax cuts, increased cash transfers to farmers, removal of LTCG tax, rational GST structure and higher infra spending, coming on the back of PSU divestment.

In fact, market experts are hoping for a revision in 80D limit and lowering of GST on health insurance products.

In an interview with CNBC-TV18, Anand Rathi Insurance Broker Pvt Ltd's Supriya Rathi said, "Health insurance in the last few years has seen accelerated growth of over 20 percent each and every year. But we have a long way to go and with Ayushman Bharat Yojana and a lot of government schemes, the Centre is doing its bit and these are good trends. However, we are still far from where the developed world is."

Yet another report said the Centre is considering a proposal to do away with long-term capital gains (LTCG) tax on listed equities to generate more foreign long-term investment.

A trade deal with the US and a single point clearance system for MNC investors and inclusion in the global bond index will improve the scenario, the report adds.

India-US trade talks resumed in September 2019 after a stalemate. India has a trade surplus of $31 billion with the US — a bone of contention for the Trump administration.

On the financial system front, MS hopes for further easing by RBI and credit expansion and bringing small saving rates to repo rates.

Morgan Stanley sees portfolio opportunities from what it calls "glaring valuation gaps" in the market as "a consequence of performance concentration."

"We think the market has some inkling of improved growth (obviously, given the corporate tax breaks), but is not pricing in the possibility of a new multi-year growth cycle. Earnings revisions breadth has turned up but remains tentative. The consensus now expects considerable outperformance by India’s corporate earnings versus EM. Hence, we believe that the

dislocations in the stock market could see closure in 2020," the MS report said.

The global brokerage's top value and growth picks comprise Bharti Airtel, ITC, HDFC and HDFC Bank, ICICI Bank, MCX, Motherson Sumi, Gujarat Gas and NTPC, while it has selected M&M Financials, Shriram Transport, Indian Hotels and BEL among midcap stock ideas.

Among domestic cyclicals, which Morgan Stanley sees as "relatively inexpensive, have underperformed and could have better earnings momentum," include Maruti Suzuki, UltraTech, M&M, DLF, InterGlobe Aviation and L&T.

Morgan Stanley India strategy: HDFC twins, ITC and ICICI Bank among top picks

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