Morgan Stanley says switch to large caps from mid caps

MUMBAI: Morgan Stanley in a note on Thursday advised switching from mid caps to large caps. The brokerage said earnings are on a recovery path, but the broad market may be disappointed in the near term given what is priced in.

What is worrying especially about mid caps is that the market cap to GDP (Gross Domestic Product) growth ratios suggests that the broad market may already be anticipating a recovery in macro growth.

“The gap between broad market performance and share of profits suggest that mid-caps may be pricing in an earnings recovery,” said Morgan Stanley.

Morgan Stanley said the rally in mid caps has been led by high beta stocks, which is an indication of exuberance.

Also, the co-relation with emerging market equities has increased, which makes Indian equity markets more sensitive to global market movement, said Morgan Stanley.

“The caveat is that flows have yet to breach danger levels. Our recent survey shows that investors continue hold bullish positions, albeit are turning cautious,” it said.