The ongoing trends, according to Morgan Stanley, suggest that there will be continuity in administration. Earnings, they believe, could be heading into a new cycle and domestic flows should return with strength. That said, oil prices, US Fed rate action, trade tension between the US and China are the key risks to equities, the research and brokerage house says.
“We expect the inflation framework (low food prices and positive real rates), fiscal consolidation, infrastructure spending, FDI focus and strong external affairs policies to continue. The new administration may bring some changes such as increasing cash transfers to poor people (hopefully subsuming existing subsidies), more emphasis on portfolio flows (which lost out in the previous five years), focus on India's external trade and social/constitutional reforms (like Article 370). Legislation is a consensus driven activity given that the NDA remains in minority in the Upper House, for now," the Morgan Stanley note says.
As a portfolio strategy, they have added Asian Paints and Interglobe Aviation (Indigo's parent company) to their 'Focus List' and removed Adani Ports and Eicher Motors.
“We are overweight on domestic cyclicals, both consumer and industrials, as well as financials, and underweight defensive sectors including healthcare and technology. We are overweight India in our emerging market model portfolio,” analysts led by Desai wrote in the report.