India is set to see an increase in investment, according to Morgan Stanley, which has identified several stocks it believes could benefit from increased capital spending in the economic strength. In a note titled “How to Play India’s Coming Capital Boom,” Morgan Stanley analysts said they anticipate supply-side factors and are in line with improved demand, boosting investment in GDP. “The potential capital boom is making Indian stocks look cheap,” wrote Morgan Stanley analysts led by Girish Ashepalya. “The most important component of profits is the rate of investment. In turn, higher profits drive investments, creating a virtuous cycle of higher wages, more consumption, more investment and more profits.” The bank expects India’s investment rate to reach 36% of its GDP in the next five years, up from the current rate of around 31%. This means that capital expenditures can grow at a compound annual growth rate of 16.7% through 2027. India is the fifth largest economy in the world and is expected to record a gross domestic product of $3.53 trillion in 2022, according to the International Monetary Fund, the bank added. Morgan Stanley picks stocks and sees the financial and industrial sectors as the main beneficiaries of the capital spending boom. “Capital goods, engineering and construction as well as large banks are playing a direct role in the rise in capital expenditures in India,” Ashepalya added. Among the top companies selected by the bank is the Indian construction company Larsen & Toubro. The bank believes that L&T is “well positioned” to benefit from the growth in investments, as the stock price has a “strong relationship” with overhead. Achebalia added that the stock is an attractive value as well. Morgan Stanley has a target price of INR 2,178 ($27.50) per share, which closed at around INR 1,62 on Monday, representing a potential upside of 11%. Read more Forget about oil – coal is hot right now. Here are 2 stocks to play with, according to the pros, the pound was dropping against the dollar. Here’s How Low It Can Be, According to the Pros Would You Like to Invest in Real Estate? These real estate funds are among analyst favorites, Morgan Stanley also likes ICICI Bank and State Bank of India (SBI). “Banks with a liquidity or liability franchise are better positioned to achieve profitable revenue growth…big banks are better in capital position, we believe. ICICI and SBI remain our preferred choices to play the capex cycle,” said Ashebalia. Achipalia believes that ICICI is one of the best private banks for solid earnings in the current cycle and has set a target price of INR 1,225 on the stock. ICICI shares closed at around Rs 907 on Monday, indicating a potential rise of 35.1%. It also “materially” raised its loan growth for SBI – India’s largest public sector bank. The stock is also trading below its long-term average, which makes it look attractive from a valuation perspective. Morgan Stanley has a target price of INR 675 on SBI, which closed at around INR 555 on Monday – an implied rise of 21.6%.
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