Morgan Stanley and CLSA, prominent brokerages on Dalal Street, are adopting a cautious stance toward India's stock market in the current year. Concerns stem from various factors, including the impending Lok Sabha polls, cues from the US market, geopolitical tensions, and relatively elevated valuations. Morgan Stanley's report acknowledges positive signals from recent state polls, hinting at the BJP-led coalition's return to power. However, the uncertainty until the Lok Sabha results and potential volatility from US market signals, such as anticipated interest rate cuts, contribute to the caution. Geopolitical factors, impacting crude oil prices, are also identified as potential sources of instability for India.
Despite these concerns, Morgan Stanley highlights strong macro fundamentals, anticipated corporate earnings growth of 20% over the next 3-4 years, and a dependable domestic primary market for funds as factors that could mitigate volatility in the Indian market compared to other emerging markets.
CLSA, in its report, notes that the Indian stock market commenced the new year with considerable bullishness, high valuations, and a record discount to debt yields. Despite India's promising long-term growth narrative and the potential for a third term for Prime Minister Modi, the report suggests that this optimistic starting point may impact returns this year. CLSA believes that equities are factoring in an optimistic US soft landing scenario, and any deviations, such as disappointing growth or persistent inflation, could adversely affect stocks. The reports collectively underscore the need for investors to navigate carefully given the prevailing uncertainties in the market.
