Tag: Morgan Stanley

Morgan Stanley goes underweight on technology as rupee weakness priced in stocks

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Morgan Stanley has turned ‘underweight’ on Indian IT services stocks, which have rallied 35 percent so far this year, as the investment bank believes the sector’s relative earnings growth will likely start to weaken as rupee recovers from its all-time lows.

“Underlying business fundamentals have been strong … but the recent strength reflects the sharp rupee depreciation, which we expect to slow from here. The sector’s relative earnings growth will likely start to weaken given our view that India’ s earnings growth is set to accelerate and broaden,” Morgan Stanley said in its report released on Friday.

The rupee has fallen about 12 percent so far in 2018, making it the worst-performing Asian currency this year.

On the other hand, the brokerage boosted its position in consumer staples sector, which has underperformed in recent weeks.

“Accordingly, we trim our neutral position in technology from 0 bps (basis points) to -300bps. We add that to Consumer Staples, which moves from -600bps to -300bps,” the report said.

One basis point is one-hundredth of a percentage point.

Here’s what Morgan Stanley said in its report:

• Analysts Parag Gupta and Gaurav Rateria downgraded Infosys and Cyient to ‘equal weight’. Equal weight is a type of weighting that gives the same weight, or importance to each stock in a portfolio.
• The Infosys downgrade was largely to reflect strong outperformance in the year-to-date and a balanced risk-reward in the future. The analysts said the concerns around the senior management departures can also be an overhang and believe that the stock lacks catalysts for further re-rating.
• For Cyient, the two analysts quoted in the report, said that this was to reflect the new challenges that have emerged on margins, and they expect  the company to report flat to lower margins despite steep currency depreciation. This is possible as the operating efficiency parameters, such as utilization, offshoring mix, is moving against the company’s own original expectations.

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Fall in Zee Entertainment stock offers good buying opportunity, says LKP Securities

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Shares of Zee Entertainment slumped 8 percent on Thursday following a rating and target price cut by Morgan Stanley.

Brokerage firm Morgan Stanley has downgraded the stock to ‘Underweight’ from ‘Overweight’ and slashed its target price on the stock to Rs 410 from Rs 610.

Ashwin Patil, analyst at brokerage LKP Shares and Securities, spoke to CNBC-TV18 about his views on the stock.

“I think that OTT (over the top) platform is definitely going to create some upheaval in the media industry but it will take some time not immediately that every user in the country is shifting to OTT because there are a lot of users in the rural markets and they are not yet aware of what is OTT exactly. In the urban market, the young generation is shifting gradually and players such as Netflix, Amazon and Hotstar are gaining quite good out of that,” Patil said.

“Zee has recently entered in to ZEE5 and they have also announced that they will be coming up with around 100-150 new content which will be including films and serials etc. so that is going to definitely help them in the near-term to medium-term but whenever you enter into new business, it takes some time to breakeven and the cost that you incur are definitely more than what you are earning at the initial stage. I think that it will take some time maybe about two-three years at least to breakeven. But once it breaks even, there will be a huge diaspora open for Zee to gain great revenues out of it. The OTTs till then will be spreading out in India maybe rural markets will take some time but at least in the urban and the semi-urban cities, it will be the must thing at that time,” he added.

“We think that it is a great opportunity and on the other hand, the FMCG companies are spending to a great extent and that is benefiting the ad revenues for Zee. Also market share in various geographies, Zee has become number one in most of the geographies,” said Patil.

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Morgan Stanley sees 30% chance Sensex at 44,000-mark by June 2019

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Indian equity indices are trading at record levels outperforming their emerging market peers.

The Sensex particularly is having a dream run with the 30-share BSE index hitting a life-time high of 38,402.96 in intra-day trade on August 21.

Global financial services firm, Morgan Stanley, thinks that Indian market’s bull-run likely will continue with a 30 percent chance that the Sensex may hit the 44,000-mark by June 2019.

The chips are in India’s favour driven by macro stability, low policy uncertainty, improving growth and domestic flows amid the recent emerging market turmoil.

“India’s policy environment has defied expectations and remained relatively benign despite the coming elections in 2019. Macro stability is strong backed by a central bank committed to keeping real rates positive,” wrote Morgan Stanley’s Ridham Desai and Sheela Rathi in a research report.

Corporate confidence is also at high and private sector’s profit share in GDP (Gross domestic product) could rise significantly.

“India’s growth is likely accelerating relative to emerging markets. Our work shows that corporate confidence is at a multiyear high and profits are likely to mean revert from below trend. Indeed, India’s corporate profit share in GDP is at close to all-time lows, which means the upcycle could be quite significant – a contrast to most other parts of the world,” the report added.

The technical also support the view with India’s yield curve is undergoing bullish steepening, with the upside suggesting that the equity market is gaining conviction in the growth cycle.

On our June 2019 target of 36,000, the Sensex would trade at just under 16x one-year forward P/E, which below its historical average, Morgan Stanely said in the report.

The report also points at risks as well as recovery in other emerging markets could end India’s outperformance, while a collapse could lead India to fall like quality stocks do when in a bear market.

Yet, another risk is the election cycle, which brings its own set of uncertainties such as inflation from food prices or fiscal slippage. In a 20 percent bearish scenario, the Sensex could slide to 26,500 levels.

The Morgan Stanley report also projects the Sensex earnings growth of 5 percent on year-on-year (YoY) basis in FY18, 23 percent YoY in FY19 and 24 percent YoY in FY20, in a moderate 50 percent probability scenario.

The report suggest large-cap GARP stocks among banks, discretionary consumption and industrials.

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Morgan Stanley stops research coverage of Tesla

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Brokerage Morgan Stanley has halted equity coverage on Tesla Inc, potentially a sign the US bank may be doing business directly with the electric carmaker as it explores options to go private.

Goldman Sachs dropped its coverage of Tesla last week shortly before confirming it was acting as a financial adviser on a matter related to the automaker.

Morgan Stanley’s website showed Tesla had been moved to “Not Rated” from “Equal-weight” on Tuesday.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Morgan Stanley chooses ICICI Bank as one of its top stock picks; here’s why

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Morgan Stanley (MS) has chosen ICICI Bank as one of its top stock picks in its Asia financials report on the back of sustained shift in performance from quality to growth at a reasonable price (GARP)

“The growth factors for the bank have been among the best and we are making ICICI Bank one of our favoured large-cap GARP stocks,” Morgan Stanley wrote in a note.

ICICI Bank on Wednesday clarified media reports that questioned its bad loans and said the bank’s accounts ‘are audited by reputed statutory auditors whose audit report and audit opinion form part of the bank’s annual report’.

Morgan Stanley further said, since India is growth is on the upside, “This augurs well for businesses levered to growth, such as ICICI Bank.”

Earlier this week, the International Monetary Fund (IMF) predicted a rise in India’s growth to 7.3 percent as the effects of demonetisation, implementation issues with  Goods and Services Tax (GST) and other reforms seem to be fading.

Here’s why Morgan Stanley calls ICICI Bank one of its top stock picks

• The Reserve Bank of India (RBI) raised the key policy rates two times consecutively as of yet. Due to this, the investment banker said the rate cycle in India has moved up.  “The yield curve is also steepening. We think both moves are good for banks with liability franchises,” it said.
• MS recommends buying the ‘underperformers’, in this case ICICI Bank, which has robust fundamentals and reasonable valuations.
• “ICICI Bank has been an underperformer as it has been down 10 percent relative to the BSE Sensex this year, with a distinct shift likely in fundamentals,” it said.
• On an overall basis, the financial firm said ICICI Bank offers ‘asymmetric upside’, that is, the stock is ‘likely to beat a rising market while marginally underperforming a falling one.’
• The only risks the financial house asks investors to be cautious about are the upcoming General Elections and the sell-off in global shares.
• It said that there are chances that the ‘market may start getting election blues and could experience heightened volatility’.
• On the sell-off, it said that since India is Asia’s second largest stock market by capitalisation, ‘it is likely that it may emerge unscathed in such a sell-off even though India has become a low beta market.’

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Strategic players line up for PNB Housing Finance stake sale

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Suitors are lining up for PNB Housing Finance as the deal process kick-starts in full force.

Many strategic players are likely to fight it out with private equity backing to buy the housing finance arm of Punjab National Bank.

Sources tell CNBC-TV18 that ahead of the deadline of August 25 for the submission of the expression of interest, a lot of alliances are taking shape.

Sources with direct knowledge suggested that Aditya Birla Capital is likely to tie-up with APAX Partners to participate in the PNB Housing Finance deal.

Amongst the other strategic players interested in the housing finance company are Indiabulls Housing Finance and Hero Group’s unlisted arm, Hero FinCorp.

Private equity firm Temasek is likely to back Fullerton for making a pitch for buying PNB’s housing finance company.

One of the most prominent contenders is Blackstone, which is likely to lead a consortium with GIC and Advent as partners, to participate in the sale process.

One of the largest strategic players, Kotak Mahindra Bank, is also exploring the opportunity. One can’t rule out interest from marquee private equity firms like KKR and even Bain Capital.

PNB Housing Finance, AB Cap, APAX, Temasek, Hero Fin, Indiabulls Housing Finance did not offer any comment on CNBC-TV18’s query on PNB Housing Finance deal.

Experts suggested that many more consortiums and tie-ups can be expected ahead of the August 25 deadline, since it’s a large transaction.

With 66 percent stake on the block by PNB and Carlyle, the mortgage lender is worth Rs 14,500 crore as per market capitalisation of PNB Housing Finance.

Carlyle has hired Morgan Stanley and Punjab National Bank has hired Credit Suisse as the deal advisors.

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Dollar to remain bullish until middle of next month, says Morgan Stanley report

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The US dollar is expected to remain bullish until middle of next month, and equity and bond outflows from emerging markets are also likely to stay strong, says a Morgan Stanley report.

The global financial services major is “neutral” on rupee and forecasts rupee at 70.3 per US dollar in the third quarter of this year (July-September).

The rupee has been among the worst-performing currencies against the dollar compared with its peers so far this year and breached the 69-mark against the US dollar amid multiple headwinds, including global uncertainties and concerns over inflation.

The global brokerage further said that oil prices are expected to fall as global oil supply increases and this should provide a “tailwind for rupee and moderate the RBI’s concern about inflation accelerating”.

Besides, over the medium term, a rate hike by the Reserve Bank will ease inflationary pressure and support rupee valuations, the report noted.
“In the near term, as we expect US dollar to remain strong until mid-August and equity and bond outflows from emerging market to also stay strong,” Morgan Stanley said in a research note and added that “we remain neutral on the rupee”.

On Reserve Bank’s policy stance, Morgan Stanley expects a rate hike at the August review meeting.In June, the Reserve Bank of India had upped its retail inflation projection by 0.30 per cent and kept the policy stance in the neutral zone, even as it hiked the key rate by 0.25 per cent to 6.25 percent.

The government has mandated the Reserve Bank to keep inflation at 4 per cent, with a margin of 2 per cent on either side.
The Monetary Policy Committee (MPC) will begin its three-day meeting on July 30 and announce its decision on the third bi-monthly policy of the current fiscal on August 1.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Sensex may trade at 36,000 by Jun 2019 on poor poll outcome, says Morgan Stanley

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Global investment bank Morgan Stanley sees the Sensex trading flat at around 36,000 by June 2019 if the general elections throw up a weak outcome, but cruising to 44,000 if the poll result is strong.

Last week, the Sensex had hit an all-time high of 36,548.41, while the broader Nifty also reclaimed the 11,000-mark, touching a high of 11,078.30. This was the highest closing since January 31, when it had ended at 11,027.70.

“The domestic stocks are jostling weak emerging markets, rising rates, higher oil prices, an election year and relatively rich mid-cap valuations. The large-cap index has support from an improving growth cycle, strong macro stability
and local appetite for equities,” Morgan Stanley said in a weekend note.

In a bear case scenario, which has a 50 percent probability, the Sensex may trade at 36,000 by June 2019, which is under-16 times the one-year forward P/E, and below historical averages, the report warned and said in this scenario, earnings growth will be 5 per cent in FY18, 23 per cent in FY19 and 24 percent in FY20.

But in a bull case scenario, which has a probability of 30 per cent, the report sees the Sensex hitting the 44,000-level by June 2019, largely led by better-than-expected poll outcomes, most notably on policy and global factors.

“The market starts believing in a strong election result as well, and the earnings growth will accelerate to 29 per cent in FY19 and 26 per cent in FY20,” the report said.

The nation would have a new Parliament by mid-May next year if the polls are held on time. Even though there are talks that the government may advance the polls to December-January.

The report titled ‘India Equity Strategy’ highlighted six factors that are favouring the domestic markets and six which are against.

Listing out the factors that are favouring Dalal Street, the brokerage said strong macro stability backed by a central bank that is committed to keeping real rates positive, a steepening of the yield curve that is at post-2010 highs now, GDP accelerating relative to other emerging markets and strong domestic flows, currently averaging around USD 2-2.5 billion a month are in a structural uptrend now.

The factors working against the markets are rising crude prices, upward pressure on inflation from MSP hikes making sure that more rate hikes are coming, the election cycle, which brings its own set of uncertainties and
relatively rich mid-cap valuations.

The global investment bank prefers large caps over midcaps. On the sectoral front, it votes for private sector banks, rising discretionary spends, industrials and domestic materials, and keeps out healthcare, staples, utilities, global materials and energy.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Morgan Stanley beats estimates on higher trading revenue

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Morgan Stanley reported a better-than-expected quarterly profit on Wednesday, driven by gains in its fixed income and equities trading businesses, sending its shares up 3.3 percent.

Net revenue from the bank’s sales and trading business rose 18 percent to $3.76 billion, with fixed income and equity trading businesses recording gains of 12 percent and 15 percent.

In contrast, rival Goldman Sachs’ trading revenue rose 17 percent, with bond trading showing a 45 percent jump and equity remaining flat in its second quarter.

Net income applicable to Morgan Stanley’s shareholders rose 43 percent to $2.27 billion in the quarter ended June 30.

On an adjusted basis, the bank earned $1.25 per share, beating the average analyst estimate of $1.11 per share, according to Thomson Reuters I/B/E/S data.

Morgan Stanley’s net revenue rose 11.6 percent to $10.61 billion, with institutional securities accounting for 53.8 percent of the gains. Institutional securities business comprises the bank’s investment banking and trading units.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow