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.

“ Real rates are positive, the current account deficit is range-bound at around 2.5% of GDP, the fiscal deficit is controlled, and inflation is benign," the report said adding that corporate balance sheets are healing.

Separately, 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.

Sectorally, Desai is bullish on private sector banks, insurance companies and real estate companies.

As for the Indian market’s 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.

Currently, MSCI India index is trading at a one-year price-to-earnings multiple of 16.18 times, higher than MSCI EM index which trades at 10.02 times . 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.

That said, 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.

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