Jonathan Garner explains why Morgan Stanley prefers India despite the steep valuations

"The question for India is how much compounding have we got to go because it is worth paying a growth multiple for a growth stock or a growth market if they're capable of sustaining earnings growth. And at the moment, we have confidence that 20% compounded EPS (earning per share) growth is going to be sustainable for India over a three to five year horizon. So it's a very interesting story," he said.

While India has not yet seen 'true global appeal', Garner pointed out that India's share in the emerging market (EM) index or the Asia ex-Japan index is rising steadily.

Explaining why India has so far not seen inflows similar to those seen in Japan, he said, Japan includes globally recognised stocks that have been familiar to investors for years. Also, the Japanese market in index terms is roughly 3.5-4 times the size of India in free float market cap and it's a developed market (DM). So, it can attract a much broader range of interest. “It's (India is) still an EM specialist or Asia ex-Japan specialist market from a foreigner perspective,” said Garner.

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Garner also shared his view on India's financial sector. “The key point is that the financial sector in India is going to benefit from rising economic activity, rising demand for financial products of all forms and growth in household and corporate leverage over time.”

 

For the entire interview, watch the accompanying video