India to slow down further in short-to-medium term: MS
May, 31st 2008
Jonathan Garner at Morgan Stanley said that India is a secular bull market. The strong conditions of 2006 have abated, he feels. There are more headwinds in the emerging market asset class than before, he said.
Indian economy is likely to slow down further in short-medium term, he added. He expects Indian market to be lower than current levels by year-end.
The big equity emerging markets will depend on internal drivers of consumption and infrastructure investment, he said. There is a correlation between emerging markets and US equity markets that still exist, he added.
Garner said that China is back to equal weight. However India is still expensive because it is trading at 17000-18000 mark, and he will be looking at a further under-performance. He said that the correction in Indian market could happen relatively fast. The higher inflation and slower growth will signal stagflation in India.
He said that structurally people are still underweight emerging market equities. According to Garner the global environment looks tougher to attract equity inflows. The dollar rally is unsustainable, because of secular strength in the Asian, emerging market currencies, he added.
He is bullish on the telecom sector. He feels it is on a high growth, but valuations will be at a premium. IT services look good but relatively low valuations versus previous performance, he said. Infrastructure is also good theme, but valuations will be challenging, according to Garner.