Morgan Stanley is “very concerned” about India’s stock market because the nation is a major oil importer, Jonathan Garner, chief Asia and emerging-market strategist for Morgan Stanley, said.
“We don’t think the fundamentals have improved that much on the ground in India and there’s still a lot of political risks and there’s this new factor of a surge in oil,” Garner said in a Bloomberg Television interview today.
Higher oil prices boosts costs for companies in India, which imports three-quarters of its energy needs. Crude futures have risen for seven straight days, the longest winning streak since January 2010, as investors bet global economic growth and supply disruptions in Iran will boost prices. Futures traded in New York gained as much as 0.8 percent in electronic trading today after settling at a nine-month high yesterday.
The BSE India Sensitive Index, or Sensex, has rebounded 19 percent from its December low, near the 20 percent threshold that signals a bull market, as a strengthening rupee and the first cut in banks’ reserve ratios since 2009 spurred offshore funds to buy more than $5 billion of stocks.
The Indian stock gauge trades at 15.9 times estimated profit, 69 percent above the MSCI BRIC Index’s multiple. The MSCI gauge tracks the largest emerging markets of Brazil, Russia, India and China.
“After outperforming this much, and with rising crude oil prices and seasonally tighter monetary conditions, India looks vulnerable to profit-taking,” Niall MacLeod, Asia equity strategist at UBS AG in Hong Kong, wrote in a note yesterday.
Morgan Stanley is overweight on emerging-market energy stocks and likes software and real estate companies, according to Garner. The brokerage doesn’t recommend telecommunication and materials stocks, he said.