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According to Morgan Stanley India Co., the next bull market for Indian stocks is likely to mark a change in the sector’s leadership, with consumer and healthcare discretion.
An increase in per capita income can increase consumer participation in spending on health and other non-food goods and services, which should make these industries grow faster than the economy, the broker said. That should also help stocks in these sectors reverse the poor performance they have suffered in recent years, analysts Ridham Desai and Sheela Rathi said.
“Both sectors are significantly underserved, unloved, and undervalued,” analysts wrote in a note to clients. “Fundamentally, the outlook for both is improving in the coming months.”
The S&P BSE Sensex and NSE Nifty 50 index posted their biggest monthly gains since 2009 in April, and have recovered nearly 30% from the lows reached a month earlier. However, they remain approximately 20% below the historical highs they set in January due to the impact of the coronavirus and a national blockade.
Among the 19 industry sub-indices compiled by BSE Ltd., an indicator of health care stocks has advanced 14% this year as drug makers have become the center of attention amid the pandemic. The group had declined in three of the past four years. A measure of consumer discretionary actions is down 21% this year, on the way to a third consecutive annual decline.
Finance has been a favorite of Indian investors for seven years, but has so far underperformed in 2020, 30% less, which is a “telltale sign” of a reversal in industry leadership, analysts said. They favor but have become expensive and their profit margins are nearing their peak, according to the broker.
Morgan Stanley has reduced its view of Indian consumer staples to underweight and finance to neutral. He recommends overweight positions in consumer discretionary and medical care. It has added Sun Pharmaceutical Industries Ltd., Apollo Hospitals Enterprise Ltd. and Lupine Ltd. to its focus list, while Godrej Consumer Products Ltd., Housing Development Finance Corp. and Multi Commodity Exchange of India Ltd. have been removed.
This story has been published from a cable agency source without modification to the text.
