Another volatile quarter likely for Indian mkts: Morgan Stanley

Indian equity markets are likely to see another volatile quarter and given the rich valuations and positioning, the country is likely to underperform during April-June period, says a Morgan Stanley report.

According to the global financial services major, the market will be focused on RBI policy and earnings for the fourth quarter of 2015-16, but the key to absolute market moves is still "what happens outside India".

"India is trading near all-time high valuations versus emerging markets but given the rich valuations and positioning India will likely underperform if emerging market rallies like we have seen in the current quarter," Morgan Stanley said in a research note.

It said the key to market performance could be a turn in the earnings cycle, which seems to have been delayed due to a combination of sluggish global growth and tight fiscal policy among other factors.

"We expect more IPOs and other follow-on offerings in the coming months as companies raise both growth and balance sheet repair capital," the report, said adding that "global growth, China growth, oil prices, emerging market news flow among other things, are factors to watch".

In the January-March quarter, the Indian benchmark sensitive index, Sensex, has slumped nearly 3 percent and was quoted at 25,338.58 at the end of trading today. On December 31, 2015, the index had settled at 26,117.54.

"A low-return world augurs well for India's outperformance, given its low-beta status, even as it means low absolute returns. We look for a turn in earnings, more policy action, revival in consumption, style shift away from quality and continuing domestic flows into equities in 2016," Morgan Stanley said.

It further noted that investors will be watching out for the bankruptcy law and the GST bill in the second half of the budget session that will resume from April 25.

"We expect the GST bill to pass in the next four months," it said.