India Has Morgan Stanley's Top Weightage In Asia — Here's Why

Morgan Stanley is overweight on India, one of its top weightage-holder countries in Asia, because of its strong growth outlook, said Jonathan Garner, chief Asia and emerging markets equity strategist, Morgan Stanley.

India's GDP during January–March quarter grew at 7.4%, the highest growth rate in four quarters, according to data by National Statistical Office.

The country's current account deficit relative to GDP is less than what it was in the past. The economy is not as affected by price pressure as it was before, Garner said.

India reported that its current account deficit declined to 1.1% of GDP in October–December quarter from 1.8% in the preceding quarter. Retail inflation eased to 3.16% in April from 3.34% in March and marked the lowest level in nearly six years.

Problems because of price surge in international markets are diminishing along with weakness in the domestic supply chain. These are testament to improvement in capital expenditure. India has both the supply and demand which is fueling its growth story, Garner said.

Foreign fund inflows are seen both in Indian equities and debt. It's a multi-asset flow story for India, according to Garner. Morgan Stanley preferred financials, consumer discretionary, and industrials in India.

There was a cyclical slowdown in India Inc's earnings in 2024 because of elections mostly. Now, monetary conditions are loosening and capex is rising again. Hence, it is most likely that earnings growth will re-accelerate. Mid-teens earnings growth is expected, he said.

Morgan Stanley is expecting two more rate cuts by the Reserve Bank of India in 2025, he said.

The MSCI India index US dollar earning-per-share growth is averaged around 12% per annum, which is far higher than any other emerging market, he said.

Morgan Stanley is expecting that the US economic growth will slow down materially. The growth may even fall below 1%. The tariff policies, which effectively is tax on the US economy, are the main cause of the slowdown. In addition to trade-related policies, there are policies related to immigration which will decrease the supply of labour in the US, Garner said.  

In the rest of the world, the impact will be muted, he said. Money moving out of US assets like dollars is actually pointing at the fact that re-allocation of portfolios are happening all across the globe. The market which has benefited the most from it is Europe, as far as flows are concerned, he said.

In Asia, the situation is more neutral overall. There are pockets of interest and India is one of them along with Japan. To some extent, China and Hong Kong are also attracting foreign institutional investors' attention, he said.  

Asian export companies may get caught up in issues. Domestic currency strength will diminish the issues. Export-dominated markets, for example, Taiwan will likely to face adversity, he said.