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Stocks recommendation from Morgan Stanley to protect from volatility and to provide good returns
28 Jan 2016
In a report titled 'India Economy & Equity Strategy' released on Sunday, Morgan Stanley, listed a few themes with potential to deliver handsome returns over the next year.

The outlook for the domestic market is bullish on a long-term basis and investors should be positioned in consumption plays and government policy beneficiaries to draw maximum gains, says Research report of Morgan Stanley. .

IT stocks: The US dollar is likely to continue its upward trend in 2016 relative to the rupee, which should augur well for sectors such as software services. Indeed, if demand in the US stabilises or improves, this will add to the performance of these stocks. Top picks in the IT space include Infosys and HCL Technologies.

Government spending: The government is committed to improving infrastructure spending. Strong improvement in roads sector is seen and expect more from the railways in the coming months.

"Thus, we are overweight on industrials, even though our recent AlphaWise work showed that private capex will remain subdued," report said. Top picks for this theme include L&T, IRB Infrastructure, Ultratech Cement, Power Grid and Tata Motors.

The GST bill is likely to be passed in the coming months and implemented sometime in early 2017. GST has the potential to benefit large companies, as their warehousing costs would decline and tax liabilities level off with the unorganised players. The exact beneficiaries will be contingent on the finer details of the eventual law. The likely to be key gainers from GST include Havells India, Jubilant FoodWorks and M&M.
Urban consumption: Urban consumption is already improving and visible in several indicators. Rural consumption, on the other hand, has borne the brunt of fiscal consolidation. Poor rains have also dampened rural sentiment.

The worst for the rural belt appears to be behind us, and a slow healing should add to the overall consumption recovery for India in 2016. "Wage growth in rural India has stopped falling, direct benefits transfers will accelerate cash deposits into bank accounts of the rural population, early signals suggest a La Nina year, and hence good rains," report  said.

"Finally, we think the government is likely to boost rural spending in the forthcoming budget. Under this theme, we like Cafe Coffee Day, M&M, and JubilantFoodworks," report said.

Banks: Going forward, Desai expects more interest rate cuts, and, with strong retail loan growth, private banks are likely to outperform the state-owned lenders again in 2016, helped also by the capital constraints at the PSU banks. "Corporate loan growth may also have troughed. Our favourite stocks in this theme include names like HDFC Bank, IndusInd Bank, SKS Microfinance and Axis Bank," report said.

"The only PSU stock in our focus list is Bank of Baroda, where the recent change in management is likely to drive performance albeit from a medium-term perspective of three to five years," report said.