January has been a rather tumultuous month for the Indian markets so far. FII outflows continue and the pain has extended to the broader markets as well. Though RBI’s liquidity boost did trigger a relief rally ahead of the Budget, the question is how strong the trend is. Investors are worried about how to approach the markets now, has the recent correction made valuations more attractive? Morgan Stanley’s Ridham Desai advises buying on dips. They see the possibility of a trend reversal in days to come.
According to Desai, the same old fear has gripped the market- “is India’s growth sustainable? Will retail investors bail out? Aren’t stocks still too rich? In our view, the correction is a buying opportunity with an understanding that it is hard to time the bottom.”
4 reasons why Morgan Stanley suggests buying on correction
The report by Ridham Desai outlines that “Our proprietary sentiment indicator has gone into buy territory for the first time since mid-2022.” Some of the key factors supporting this include
1. Growth trajectory promising
The report highlights that growth slowdown has unnerved the market. But Morgan Stanley believes that “growth is returning soon.”
2. No forceful selling
Moreover, “the price fall has been on falling trading volumes implying an absence of a bid rather than a forceful selling,” highlighted the report advising buying on dips in India.
3. Value in private financials
Banks have been partying on the back of RBI’s liquidity boost. But that apart Morgan Stanley highlighted that “Private financials appear to offer the best risk-reward ratio.”
Though Morgan Stanley does not rule out a possibility of the markets slipping lower (like it did in March 2020), they “do not believe fundamentals warrant a major deterioration in stock market sentiment from here(current levels).”
According to them, “Government expenditure is accelerating, the fiscal consolidation in FY26 is likely to be much smaller than in FY25 and the RBI is committing itself to more liquidity and possibly less regulatory overburden.”
4. Stage set for a comeback by markets
They explained that in the given circumstances the most important reasons for the slow growth patch are actually “getting behind us. In the meanwhile, retail investors have exhibited resilience.
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