Indian stocks to buy to ride the investment boom: Morgan Stanley
India is set to see a surge in investment, according to Morgan Stanley, which named several stocks it believes could benefit from rising capital spending in the economic powerhouse. In a note titled “How to Play India’s Coming Capex Boom,” Morgan Stanley analysts said they expected supply-side factors and to adjust to better demand, boosting investment to gross domestic product. “A likely capex boom makes Indian stocks look reasonable,”[ads1]; wrote Morgan Stanley analysts led by Girish Achhipalia. “The most important ingredient in profits is the rate of investment. In turn, higher profits drive investment which creates a virtuous cycle of higher wages, more consumption, more investment and more profits.” The bank sees India’s investment rate reaching 36% of GDP over the next five years, up from the current rate of around 31%. This means that investment costs can grow at an annual compound growth rate of 16.7% through 2027, the bank added. India is the world’s fifth largest economy and is projected to have a GDP of $3.53 trillion in 2022, according to the International Monetary Fund. Stock picks Morgan Stanley sees industrials and finance as the main beneficiaries of the investment boom. “Capital goods, engineering and construction as well as large banks are a direct bet on India’s rising capex,” Achhipalia added. One of the bank’s top choices is India’s largest construction company Larsen & Toubro. The bank believes L&T is “in a sweet spot” to benefit from the growth in investment, with its share price having a “strong correlation” with public investment. The stock is also attractively valued, Achhipalia added. Morgan Stanley has a price target of 2,178 Indian rupees ($27.50) on the stock, which closed at around 1,962 Indian rupees on Monday, representing a potential upside of 11%. Read more Forget oil – coal is hot right now. Here are 2 stocks to play it, according to the pros Sterling has been on the tank against the dollar. Here’s how low it can go, according to the pros Want to invest in property? These REITs are among analysts’ favorites. Morgan Stanley also likes ICICI Bank and State Bank of India (SBI). “Banks with liquidity or liability franchise are best positioned to deliver profitable earnings growth… Large banks are best positioned to capitalize, we believe. ICICI and SBI remain our preferred picks to play the capex cycle,” Achhipalia said. Achhipalia believes ICICI is one of the best placed among private sector banks to deliver strong earnings in the current cycle and has assigned a price target of INR 1,225 to the stock. Shares of ICICI closed at around 907 rupees on Monday, implying a potential upside of 35.1%. He also “materially” increased loan growth for SBI – India’s largest public sector bank. The stock is also trading below its long-term average, which makes it look attractive from a valuation perspective. Morgan Stanley has a price target of 675 Indian rupees on SBI, which closed at around 555 Indian rupees on Monday – an implied upside of 21.6%.
