By Ami Shah and Harsha Jethmalani
Morgan Stanley report said that there are pressures from rising oil prices and a depreciating currency, but these are not difficult to handle
Mumbai: India’s macro environment is not as stretched as it was in 2013, Morgan Stanley said in a report.
“No doubt there are pressures from rising oil prices and a depreciating currency, but these are not difficult to handle,” the report said.
Ridham Desai, head of India equity research and India equity strategist, told reporters that Indian companies were at the beginning of new earnings cycle
“Revenue growth is at a multi-quarter high,” Desai said, adding that though margin pressures persisted, the worst was behind us.
As for valuations, given the persistent bid from domestic investors who are raising the equity allocation in their balance sheets, it is quite possible that Indian stocks trade at higher multiples than in the past, the report added.
It should be noted that in 2018, domestic investors continue to be net buyers in Indian equities. On the other hand, foreign investors are still net sellers.
Although valuations may remain rich, nominal equity returns in rupee terms could be lower than the trailing performance in the coming decade, albeit with lower volatility.
However in the near term, investors in Indian equities should brace for increased volatility in a run-up to the 2019 Lok Sabha elections, Desai cautioned.