[T.S.R:16598] Morgan Stanley-Addressing India Specific Concerns; Maintain BUY The Dips

Two primary concerns – inflation and valuations – may not be fully justified:

Over the past couple of months, we have met nearly 100 institutional investors. Generally speaking, investors have appeared a bit skeptical of India with two key debates:

•

India's inflation is structural: We view the high inflation of the past 12 months as transient.

•

Equity valuations are rich: In our view, valuations are neither inexpensive nor at levels that would detract from equity performance.

We also address worries about several other factors:

•

Rising equity supply: Equity supply is rising – but we think it is not high enough to hamper equity returns in the coming months.

•

Apparent 2Q earnings disappointment: Earnings are still in good shape, especially vs. the rest of the world; we see scope for upside

surprises.

•

The dependence on foreign flows to drive equity returns: We do not disagree – India's balance sheet is a source of risk, especially given its

funding by capital market sources.

•

The recent rise in indices, which points to an overly exuberant market: In our view, the overall market is still not exuberant enough for us to worry about the state of the bull market.

Of course, there can be corrections along the way. We remain buyers of such dips.

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