Morgan Stanley's Ridham Desai explains why global fund managers are underweight on India

Ridham Desai, MD, Morgan Stanley India

Global fund managers have been underweight on India due to valuation concerns, said Ridham Desai, MD of Morgan Stanley India.

The Global Emerging Market (GEMS) mandates are currently slightly underweight on India, despite India being a consistent outperformer in the emerging markets (EM) context, Desai told CNBC-TV18.

"Concerns about high valuations have kept these fund managers waiting for a market correction, which hasn't materialised," he said. Although India's weight in the EM index has increased from around 8 percent pre-COVID to 17 percent, fund managers have not kept pace with this rise, Desai added.

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He said that a staggering inflow of $50 billion would be required for the GEMS portfolios to be overweight on India. He expects Foreign Institutional Investors (FIIs) to return in full force to India in the second half of this year.

In the mean time, domestic inflows continue to rise, with mutual funds purchasing approximately $100-150 million of stock daily,  Desai pointed out.

Desai sees value in private banks, consumer discretionary, autos, retail, and select industrials and IT services. Conversely, he is of the view that consumer staples and healthcare sectors offer limited value and advised investors to be cautious in these areas.

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According to Desai, a slowdown in global growth and China's deflation could pose key risks for the market. He said that although India's sensitivity to oil prices has decreased, a sudden significant increase in oil prices could still cause near-term pain.

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