Stocks' recovery may track 2003: Morgan

A rebound in Indian stocks this year may echo a recovery that started in 2003, when a flood of liquidity helped sustain higher share prices even as valuations climbed, Morgan Stanley said. 

Stocks that are leveraged on a cyclical recovery have rallied more than so-called defensive shares since the lows this year, a pattern that also occurred during the 2003 recovery, Morgan Stanley analysts Ridham Desai and Sheela Rathi said in a report. Investors should “buy on dips and hold” amid the market’s volatility, they added. 

“An outcome similar to 2003 should not be ruled out,” the analysts said. “Liquidity, both flows and economic measures, appears to be more forceful than in 2003, even though valuations are higher.” 

The BSE Sensitive Index has soared 87 per cent since its March 9 low on optimism the election victory of the ruling Congress party will allow Prime Minister Manmohan Singh to introduce reforms to stimulate economic growth. The MSCI India Index has gained 64 per cent so far in 2009, poised for its best year since 2003, when the index gained 65 per cent. Gains this year have boosted the MSCI India’s price-to-reported earnings ratio to 20 times, up from a March low of 9.2 times, according to data tracked by Bloomberg.