Ridham Desai: Considreing India's growth potential, valuations are not very expensive

Ridham Desai: Earnings growth likely to be in double digits starting next year

 Jinsy Mathew   
  • June 1, 2016  
  • |  
  • UPDATED   19:12 IST

Indian markets have been gaining ground at a breakneck speed over the past few trading sessions and once again the talks of Indian equity being at the cusp of a bull run has gained ground. It is in such a setting, that the Morgan Stanley 18th Annual India Summit was being held in Mumbai. Following are Ridham Desai, head of India equity research, Morgan Stanley's view on India and what he thinks are the highlights going forward.

Global Markets

  • Global economic outlook remains bleak due to low growth environment
  • China slowdown, strengthening Dollar and lower commodity likely to remain the major concerns in the near term
  • Dim view on China due to gradual slowdown in real GDP growth, surmounting debt to GDP and persistent disinflation
  • Fed not in a position to hike rates in the upcoming Policy meeting

Indian Equity market

  • Relatively limited upside from current levels due to turbulance in global economy
  • India most likely to outperform emerging markets in the next 12-18 months
  • On valuations basis, India is not a cheap market but considreing India's growth potential, valuations are not very expensive
  • Incase of a collapse in global equity markets, India won't be spared by the downside will be realtively lesser than other markets
  • Corpoarte debt cycle which was as bad as 90s has peaked (from a stock market perspective)
  • Earnings growth likely to be in double digits starting next year
  • India likely to continue to be the most resilient market among emerging markets
  • Even though the Government has rendered a considerable push to public spending, private capital expenditure remains anemic
  • Cyclically India is coming off a prolonged slowdown, thanks to the uptick in consumption, increased infrastructure spending and foreign investments
  • Bets on the discretionary consumption space which is likely to rise. Therefore, positive on consumer discretionary and retail banks
  • Earning and global market behavior - two most important factors to watch out for
Key Observations
  • Macro climate visibly improved with the threats of deflation, current account deficit capped
  • Spike in oil prices to be a concern only if crude oil cross the $70 mark
  • Two more rate cuts of total 50 bps likely by FY 2018
  • Expects the GST Bill to be approved later this year, thanks to the decline in the Congress bench strength in the Upper House
  • Observes that the general impression on the lines of Government has not some much is soon set to change.