Recently, Morgan Stanley, the global brokerage firm, created waves after they upgraded India’s outlook rating to ‘Overweight’. The same agency had earlier upgraded their ratings on India from ‘Underweight’ to ‘Equalweight’ – Reason? India’s phenomenal growth and resiliency despite unfavourable global macro factors.
The ratings also drew attention for another reason. China. Yes, the neighbour received an “Equal-weight” rating from the same firm, throwing shade on China’s future growth and valuation.
Overweight? Equal-weight? Sounds confusing, doesn’t it?
Well, let us break down these terms for you and help you understand what Morgan Stanley actually meant to say! Hint: India’s on a roll!
What do these ratings mean?
The financial world is a mix of highs and lows, and there is no better way of describing the market than its ever-present fluctuations. Still, financial analysts help traders and investors ride these unpredictable waters by studying the stocks and their behaviours and then rating them accordingly. These ratings help them decide whether to buy, sell or hold on to a particular stock.
These ratings are divided into three categories: overweight, under-weight and equal-weight
As analysts call them, overweight stocks are predicted to perform well in the future. Analysts believe that these stocks have the potential to outperform the broader market and other stocks in the sector. On the flip side of the coin, underweight stocks are predicted to perform poorly in the future (in the coming six months or a year, maybe). The other rating type that crosses the line between these two terms is ‘equal-weight’ stocks. This simply means that an equity analyst believes that a stock’s price will align with or be similar to the benchmark Index used for comparison.
Now that we have established what these ratings mean in broader terms, let’s read what Morgan Stanley thinks about the Indian economy.
What Does ‘Overweight’ Rating Mean For India?
Morgan Stanley’s rating of India as ‘Overweight’ is a testimonial to what even an average investor can predict – A large economic boom is underway in India! The agency’s backing comes from a prediction that the country is poised for substantial economic growth while the rest of the world might be slowing down.
The agency further added that specific fundamental changes in the country were responsible for the upgrade. The structural reforms over the last few years paved the way to achieving this feat. Reforms like corporate tax cuts and production-linked incentives schemes, regulations and economic formalisation all played catalysts in India’s steady growth despite the pandemic, war and inflation.
Not just that, India has now become the most preferred market according to the brokerage agency! Additionally, per the firm’s prediction, India’s benchmark index, the Sensex, could hit an estimated 68,500 by December. The agency also believes India’s economy is on track to achieving a GDP forecast of 6.2%!
Morgan Stanley also highlighted India’s capacity for higher earnings per share growth in USD compared to other arising markets. This promising outlook is attributed to India’s youthful population, likely fueling increased investment in equities and other avenues.
Where India is facing an upgrade, another rating agency lowered the United States’ rating from AAA to AA+, pointing to the worsening fiscal situation in the upcoming three years and recurrent last-minute discussions over the debt ceiling (which jeopardise the government’s capacity to meet its financial obligations).
So, as the US and China’s economy looks in limbo, experts and investors largely agree that this is India’s decade. Will the predictions pan out to be true? To know, watch this space.
India is predicted to achieve new heights in economic growth thanks to the positive trends in economic macro factors and foreign investments. The country’s resilience and commitment towards reforms and macroeconomic stability have helped it become an attractive destination for global investors. Also, loss of confidence from some major countries can double India’s growth prospects. All in all, India’s growth story is one to watch out for!