Jonathan Garner of Morgan Stanley: India to emerge as FII's darling; bullish on ICICI Bank, Maruti, and more

With India now the second-largest market in emerging markets and on track to become the largest, global investors cannot afford to ignore it, said Jonathan Garner of Morgan Stanley.

India's market has grown substantially, attracting truly global funds with the ability to invest anywhere in the world. In the past, during the peak of China's market, global funds typically held two or three China e-commerce internet stocks in their portfolios.

However, this trend has largely changed, with global investors now favouring one, two, or three mega-cap Indian stocks, according to Jonathan Garner, Chief Equity Strategist for Asia and Emerging Markets at Morgan Stanley.

"This shift has already begun and is expected to accelerate," Garner told Moneycontrol in an interview. Simultaneously, India is experiencing a retail-driven boom in small and medium stocks, alongside a surge in options trading.

This reflects a broader trend of wealth creation among India's young and dynamic population, he added.

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Global investors now prioritise liquidity and substantial market exposure relative to their benchmark index. Previously, when India constituted a smaller segment, it was often overlooked.

However, with India now positioned as the second-largest market in emerging markets and poised to become the largest, global investors cannot afford to disregard its significance, emphasised Garner.

He further highlighted several pockets of growth within the Indian market. "What we like particularly is domestic demand plays," he explained. This includes sectors like consumer discretionary, industrials, financials, and real estate.

Notably, real estate, a sector previously not recommended for exposure in India, is now gaining momentum.

Garner expressed bullishness on specific stocks including ICICI Bank, Maruti Suzuki, GAIL, and Godrej Properties in real estate. In contrast, Morgan Stanley is more cautious on externally earning sectors such as IT services, outsourcing names, pharmaceuticals, and defensive stocks, though they are not in a defensive posture on India overall.

The analyst noted a recent shift in sentiment towards consumer and IT stocks post-election, as opposed to infrastructure, capital goods, and other economy-sensitive stocks.

With a significant CapEx cycle in recent years, Garner anticipates a continued emphasis on infrastructure but expects the focus to gradually shift towards consumer-driven sectors, which offer a robust environment and a wide range of investment opportunities.

Also Read | India poised to replace China as largest market in EM index: Morgan Stanley's Jonathan Garner

Jonathan Garner's insights underscore the evolving landscape of India's market development and sectoral preferences. As India continues to attract global funds and shift towards consumer-driven growth, it presents compelling opportunities for investors looking to capitalize on its expanding economy and dynamic market environment.

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