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India's terms of trade went through a Yo-Yo ride last year.<br />
For now, with crude oil suffering a supply-led price fall, the<br />
terms of trade have once again shifted in India's favor.<br />
India's responds to supply shortage led spikes in oil - we<br />
have tried to identify these by measuring oil performance to<br />
copper (both commodities assumed to respond similar to<br />
improvement in global demand). We find that India's USD<br />
equity performance plots directionally against the<br />
oil/copper relative performance (as one would expect).<br />
Exhibit 11: Brent relative performance<br />
Brent crude Rel to Copper YoY Returns MSCI India Rel to EM YoY Returns<br />
80%<br />
60%<br />
40%<br />
20%<br />
0%<br />
-20%<br />
-40%<br />
-60%<br />
2001<br />
2002<br />
2003<br />
2004<br />
2005<br />
2006<br />
2007<br />
2008<br />
2009<br />
2010<br />
2011<br />
2012<br />
2013<br />
2014<br />
2015<br />
2016<br />
2017<br />
2018<br />
Source: RIMES, MSCI, Bloomberg, Morgan Stanley Research<br />
Exhibit 12: India 10 year yield<br />
-30%<br />
-20%<br />
-10%<br />
0%<br />
10%<br />
20%<br />
30%<br />
40%<br />
Whether the 10-year yield's recent peak is the peak of this<br />
cycle will demand primarily on how India's growth pans out<br />
next year. Since we are constructive on growth, to us it<br />
seems that bond yields may have further to rise in this<br />
cycle.<br />
Consistent with the economic cycle, short rates are likely to<br />
move higher albeit with a pause in the coming months given<br />
the benign headline inflation and reasonable real rates.<br />
Source: Bloomberg, Morgan Stanley Research<br />
Exhibit 13: Policy Rates<br />
12%<br />
11%<br />
Repo Rate Rev repo 91D Yield<br />
10%<br />
9%<br />
8%<br />
7%<br />
6%<br />
Revenue growth for Corporate India is already accelerating<br />
for the past several quarters and is now at a five-year high.<br />
Revenue growth could be heading higher in 2019.<br />
5%<br />
4%<br />
3%<br />
Apr-02<br />
Sep-02<br />
Feb-03<br />
Jul-03<br />
Dec-03<br />
May-04<br />
Oct-04<br />
Mar-05<br />
Aug-05<br />
Jan-06<br />
Jun-06<br />
Nov-06<br />
Apr-07<br />
Sep-07<br />
Feb-08<br />
Jul-08<br />
Dec-08<br />
May-09<br />
Oct-09<br />
Mar-10<br />
Aug-10<br />
Jan-11<br />
Jun-11<br />
Nov-11<br />
Apr-12<br />
Sep-12<br />
Feb-13<br />
Jul-13<br />
Dec-13<br />
May-14<br />
Oct-14<br />
Mar-15<br />
Aug-15<br />
Jan-16<br />
Jun-16<br />
Nov-16<br />
Apr-17<br />
Sep-17<br />
Feb-18<br />
Jul-18<br />
Dec-18<br />
May-19<br />
Oct-19<br />
Source: RBI, Bloomberg, Morgan Stanley Research<br />
Exhibit 14: Broad Market Revenue Growth<br />
30%<br />
Revenue growth (Broad Market -<br />
1178 cos) RS<br />
10%<br />
-10%<br />
Sep-04<br />
Sep-05<br />
Sep-06<br />
Sep-07<br />
Sep-08<br />
Sep-09<br />
Sep-10<br />
Sep-11<br />
Sep-12<br />
Sep-13<br />
Sep-14<br />
Sep-15<br />
Sep-16<br />
Sep-17<br />
Sep-18<br />
Source: Capitaline, Company data, Morgan Stanley Research<br />
5
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