Nykaa, Maruti, Titan among 10 stocks on Morgan Stanley's Focus List

Morgan Stanley prefers Barbell portfolio strategy for India, which means it feels stock-specific approach would work better in India than large caps and macro investments.

The investment firm believes emerging markets (EMs) will benefit in 2023 from a relatively more benign world versus 2022. But it said it is underweight on India as some other markets have shown improvement. This even as it feels that India's earnings growth remains strong, said Morgan Stanley in a recent report.

“We remain underweight India in an EM context given our view on improving conditions for some large Emerging markets (such as China, Korea and Taiwan). We believe emerging markets are benefiting from a relatively more benign world vs. 2022, and India’s relative valuations imply that its recent underperformance may continue for a few more weeks,” the report said.

The 10 stocks that have figured on the investment firm's Focus List are - FSN E-Commerce (parent company of Nykaa), Maruti Suzuki, Titan, ICICI Bank, SBI Cards, SBI Life Insurance, HAL, Larsen & Toubro, Infosys and UltraTech Cement.

Also read: Why Sensex may touch 68,500 by end of 2023. Morgan Stanley explains

Among the most important catalysts for markets now are - the 2024 general election outcome – something that will come into play in 2H23 – the rate cycle both home (the peak is likely behind us) and abroad; the strength of the earnings cycle (we are 10% ahead of the consensus for F2024); the impact of China reopening, especially on input prices and energy costs; and the likely increase in the institutional bid on shares, said the brokerage.

Commenting on the outlook of Sensex, the brokerage said “Our BSE Sensex target of 68,500 implies upside potential of 13% to December 2023. This level suggests that the BSE Sensex will trade at a trailing P/E multiple of 20.5x, ahead of the 25-year average of 20x. The premium over the historical average reflects greater confidence in medium-term growth.”

“We assume no major up move in commodity prices especially oil and fertilizer (either due China reopening or the conflict in Ukraine), stable domestic growth as per our forecasts, the US does not slip into a recession, RBI exits at 6.5% repo and government policy remains supportive via strong infrastructure spending. Sensex earnings compound 22% annually through F2025E,” the brokerage further added.

For the financial sector, the brokerage said peaking short rates, higher credit growth, and peaking credit costs imply outperformance for financials, especially for non-bank lenders. Whereas for the consumer discretionary sector, the brokerage said we expect a recovery in rural demand to aid overall consumption demand. Key upside risk is falling raw material costs and downside risk is slower urban growth.

Strong government capex and a nascent pickup in private capex drive our overweight, said against the industrial stocks whereas against the technology stock picks the brokerage said position reflects our barbell strategy. Least exposed to domestic growth although US recession is a risk.

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