India's bull run has just started, says Morgan Stanley

In a recent report titled ‘How Does This Bull Market Compare With History?’ Morgan Stanley drew a comparison between the current bull market and the one India witnessed during 2003-08. “The ongoing bull market compares well with history. If this bull market is reminiscent of that in 2003-08, as we think (given a likely fresh earnings cycle), it has more legs to it,” said Ridham Desai, Head of India Research and India Equity Strategist at Morgan Stanley in a report co-authored by Sheela Rathi & Nayant Parekh.

India has outperformed emerging markets (EM) in each of the previous five bull markets with an average outperformance of 52% versus 23% for this bull market, added the report. This is likely to continue in the coming months as well.

According to the global brokerage firm a bull market is when the index doubles from its trough. India has had six bull markets, including the present, over the past three decades.

On the multiple front, Morgan Stanley is of the opinion that the given depressed earnings, P/B (price to book ratio) is a better metric than P/E (price to earnings ratio) for comparisons. The ongoing bull market started at a similar multiple as historically. The current P/B of 3.6 times compares with an average peak of 5.2 times.

Bull markets in a picture

Commenting on the pace of the bull run Desai stated that, “the average weekly return of 1.6% is still less than what we have seen in other bull markets and tells us that the apparently rapid pace of equity returns in the current bull market is nothing unique. The volatility of this weekly return at 3% is not different from history.”

There is return dispersion across bull markets making the average return less meaningful. This one is up 106% – the historical average is 284%. While we see further upside in the immediate 12 months, the pace of gain may slow.

For the coming year, its top picks are consumer discretionary, industrials and financials. Consumer staples are underperforming, whereas materials, industrials and consumer discretionary (all cyclical) are the top three performing sectors.

The underperformance of financials is an outlier, usually a top three sector (could be due to composition changes), added the report.

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