MUMBAI: Global strategists at Morgan Stanley and Bank of America (BofA) are positive on India even as the latter downgraded its forecasts for Asia growth amid persistent pressures from tariff shocks. However, they believe that uncertainty is still at historic levels and weak global markets can cap absolute returns.
Morgan Stanley noted that India’s low beta is helping it to significantly outperform amid the global equity price volatility. “Weak global markets can cap absolute returns, whereas a global bull market could coincide with relative underperformance for a low beta market like India,” a note said.
Some of the strong fundamentals noted by the strategists are macro stability with improving terms of trade, declining primary deficit and falling inflation volatility, mid to high-teens earnings growth annually over the next three to five years led by an emerging private cycle, re-leveraging of corporate balance sheets, and a structural rise in discretionary consumption.
According to BofA, the primary source of downside growth risks comes from three channels of negative impact, including direct impact on India’s exports from higher US tariffs, indirect impact of global growth slowdown on India’s exports, and sentiment hit to investment demand from weaker capital markets and growing stack.
But factors like falling commodity prices, strong domestic production, and an easier policy stance will help mitigate these risks, its report said and added that still, it is likely to be impacted by a slowdown, even if it has better shields than others.
In another report, BofA said it now expects average GDP growth in Asia to decelerate by 60 bps in 2025 and 30 bps in 2026. “On a GDP-weighted basis, regional growth could moderate to 3.9% in 2025 before accelerating to 4.2% in 2026 from the current projection of 4.4% in 2025 and 4.4% in 2026,” it said.
Region wise, it has lowered China GDP growth forecast to 4.0% from 4.5% for 2025 and 4.2% from 4.5% for 2026, with additional policy stimulus to counter trade shocks. “We expect Japan to avoid a recession narrowly despite a 25% tariff on auto, while India is relatively insulated with policy support,” it said. For the rest of regions, we see stronger headwinds on North Asia and ASEAN than ANZ”
Technically, strategists at Morgan Stanley said that the recent decline in the Indian market was orderly with hardly any increase in implied volatility and persistent retail buying underpins its structural nature, but foreign portfolio positioning is the weakest since we have had the data in 2000 and there are early signs that their view on India is shifting. “Our proprietary sentiment indicator is in the buy zone,” they said.
According to them, the most crucial cue will likely be global, including US policy and global growth rates. “A global recession or near recession will challenge our call,” they said while noting that longer-term concerns include capacity constraints in the judiciary, AI’s effects on the tech industry, low productivity in the farm sector and state-level fiscal challenges.
Morgan Stanley prefers domestic cyclicals over defensives and external facing sectors and is overweight on financials, consumer discretionary and industrials but underweight on energy materials, utilities and healthcare. “This is likely to be a stock pickers market, in contrast to one driven by top-down or macro factors since the Covid pandemic,” they said adding “We are capitalization agnostic”.
Source: The Financial Express
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