Asia's best performing stock market will have “significant” room to grow in the next three to five years, global brokerage house Morgan Stanley India said.
The S&P BSE Sensex gained well over 17 percent so far this year, making it the best performing index among its Asian peers. While the benchmark seems expensive at price-to-earnings multiple of 23.43 times, well above its five-year average, analysts Ridham Desai and Sheela Rathi argued otherwise.
Valuations look “reasonable” and are much more attractive than U.S. equities and local bonds, they wrote in a research note.
Key Favourables
- New growth cycle for earnings
- Excess liquidity
- Superior macro environment versus other emerging markets
- Prime Minister Narendra Modi's likely re-election in 2019
Earnings revisions will likely turn positive in the coming six months after six years in negative territory.Morgan Stanley Research Note
India's household savings have been forecast to boom earlier, which would mean people will have more money to pump in the market. Morgan Stanley expects domestic equity savings to reach $420 billion over the next 10 years.
Indian equities have underperformed other emerging markets since April, which represents the "biggest risk" to its current rally, the brokerage said.
Key Risk Factors
- GST implementation
- Valuation of Mid cap stocks
- Monetary policy
- Monsoons
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