India is arguably at the start of a long wave boom at the same time as China may be ending one, according to Morgan Stanley. 

“For India, which we upgrade to OW (overweight) today, the situation is in stark contrast to that in China, as borne out by our recent visit in June to the MS annual investment summit in Mumbai. With a GDP per capita of only US$2.5k per capita (vs. US$12.7k for China) and positive demographic trends, India is arguably at the start of a long wave boom at the same time as China may be ending one. Consider that household debt/GDP in India is just 19% vs. 48% for China and that only 2% of Indian households have life insurance,” the brokerage firm said in a new report adding that India rises from number 6 to number 1 in its process.

This upgrade comes after Morgan Stanley previously elevated India from ‘underweight’ to ‘equal weight’ on March 31. Simultaneously, it has downgraded its rating on China to ‘equal-weight.’

“Relative valuations have become less extreme compared to last October, contributing to this meteoric rise,” the Morgan Stanley report said. The ongoing trend of a Multipolar World is driving foreign direct investment (FDI) and portfolio flows, and India’s reform-oriented and macro-stable agenda strengthens its prospects for robust capital expenditure (capex) and profitability outlook, the brokerage firm said in its report.

“Simply put, India’s future looks to a significant extent like China’s past. Our economics team thinks trend GDP growth in China is likely to be around 3.9% to the end of the decade vs. 6.5% for India. In this context, it is particularly relevant to note long-run trends in real effective exchange rates for the CNY and INR. The CNY appears to have made a major top in early 2021, and on the BIS measure has weakened by 15% in the last 18 months or so,” it added.

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