The brokerage firm, Morgan Stanley has upgraded its view on India’s market and has upgraded India’s status to ‘Overweight’ from ‘Equal Weight’. An overweight rating means that the firm expects India's economy to perform better in the future. The upgrade in the backdrop of the USA losing AAA status and the economic slowdown in China.

This is due to the nation's reform and macro-stability agenda supporting a strong capex and profit outlook. India's macro indicators remain resilient, and the economy is on track to achieve the 6.2% GDP forecast said the brokerage firm. According to Morgan Stanley, India is now the top-ranked, most-preferred market among emerging markets (EMs), rising from the sixth spot, due to supportive foreign inflows, macro stability and positive earnings outlook.

“Relative valuations have become less extreme compared to last October, contributing to this meteoric rise,” said Morgan Stanley in its report. This indicates that India’s investment environment has become far more favourable.

"India rises from 6 to 1 in our process, with relative valuations less extreme than in October, and India's ability to leverage multipolar world dynamics is a significant advantage," Morgan Stanley analysts said. "India is arguably at the start of a long wave boom at the same time as China may be ending one," the report added. "We think returning India to an 'overweight' rating and downgrading China to 'equal weight' is warranted,” said the firm.

Meanwhile, China’s status was downgraded by Morgan Stanley from ‘Overweight’ to ‘Equal Weight’. According to the brokerage firm, this move was due to China’s economic outlook and the analysts advised investors to be cautious and take profits amid the recent rally driven by government stimulus packages.

The firm also observed that China’s easing of measures is going to be gradual and will not be enough to sustain the highs in the stock market. They also said that the country would have to make massive improvements such as local government financing vehicle (LGFV) debt, the property and labour markets, and geopolitical factors. These issues could impact China's future inflows and re-rating potential.