Ridhan Desai's top picks: Industrials, infra and realty

Mumbai: Infrastructure- and industrial-related stocks are expected to gain as India steps up spending, while pent-up demand could also boost the real estate sector, said Ridham Desai, MD, Morgan Stanley India. Staples-related consumption looks fully priced, while discretionary and travel related stocks could also be in the list of potential purchases, Desai said in a wide-ranging interview.Inflation is not such a big worry for the Reserve Bank of India (RBI), and negative real interest rates are here to stay for some time. Desai said that the Indian economy looks set to enter 2021 in a stronger position and the economy is on course for a contraction of 4.7% for the full year, which was Morgan Stanley’s initial estimate at the beginning of the year.“I’m still a little bit surprised, having said that, about the recovery in jobs,” Desai said. “Jobs are usually a lagging indicator. This in part may also be due to the fact that this slowdown was not induced by macro-economic factors but by an external agent. As the external agent faded, jobs came right back. Maybe that’s the reason we have seen a recovery in jobs to pre-COVID levels.”India will report its FY21 second-quarter GDP data on Friday and most economists expect a smaller contraction of under 10% versus the steep 23.9% decline in the first quarter. Economic indicators such as the purchasing managers’ index for manufacturing and services, GST collections, auto sales, consumer durable and smartphone sales have recovered sharply in the past couple of months, prompting some economists to believe that the year-end economic growth would be better than expected.Rating agency Moody’s has revised its full year FY21 GDP projection to a contraction of 10.6% from 11.5% drop estimated earlier.Desai said Morgan Stanley had estimated a 4.7% drop as it believes that there would be a V-shaped recovery once the stimulus finds its way into the real economy and that appears to be playing out.Indian stock markets have recovered smartly from the lows of March and the Nifty crossed 13,000 on Tuesday, becoming the second-best performing index in the world after the Nasdaq. Morgan Stanley estimated last week in its outlook that the Sensex would touch 50,000 by December 2021.The market’s biggest drivers so far have been technology, pharma, industrials, metals with banking playing catch up after the September quarter results pleasantly surprised the street.“I wouldn’t be bearish on consumer stocks. I would still take into where valuations are. And in that context, I think discretionary consumption and travel and related businesses still look like stocks to buy. In contrast, I think consumer staples are more fully valued. Those are not the stocks that I would want to buy,” he said.Desai is bullish on industrial, infrastructure related and real estate stocks given the government spending and commitments.

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