The Indian economy is expected to start its recovery from the first quarter of 2020, said Ridham Desai, head of India equity research and India equity strategist at Morgan Stanley.

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Praising Narendra Modi government's divestment plans for public sector undertakings, Desai said, "The return on capital for some of these public sector companies are woeful. Also, they are a drain on the overall capital and growth prospects for the country. So, the fact that they get privatised is good news for how capital gets allocated and therefore for growth."

Desai said India's problem over the last 2-3 years has been slowing exports, which has been often ignored as lot people in the country focus on domestic issues, "Export growth has declined from double-digit to negative single-digit territory. Given that exports are 25 percent of GDP, it alone accounts of entire GDP growth slowdown that we have witnessed in India."

"With respect to earnings, I think the good news out of the quarter that just went by is that margins have started expanding for corporate India. Revenue growth was sluggish reflecting the overall poor growth environment but margins have started expanding at the operating level," he said on the sidelines of Morgan Stanley Singapore Summit.

Talking about financials, he said, "There are valuation opportunities across the financial sector, not just in public sector banks. We have valuation opportunities in non-banks, we have valuation opportunities in private banks. So it’s a long list of stocks that people can buy and it’s all a function of each one’s portfolio strategy as to where they want to go."

Further, Desai said, "We prefer the private sector banks where we find that there are capital adequacy and good growth prospects backed by decent valuations and therefore reasonable upside."

First Published:Nov 20, 2019 4:38 PM IST