In its latest report, Morgan Stanley has upgraded Indian equities to 'equal-weight', a move that will bring some relief to the government facing a slew of downgrades from international agencies.

The latest report titled, 'Asia/GEMs strategy' showed that the India equities now carry the rating of 'equal-weight' after being rated underweight since early 2011. The global investment bank said that the equities in the country are now trading at a price-to-book multiple of 2.1x, which is close to the trough valuations of 2.0x in the 2002 and 2008.

The company has set a Sensex target of 19,954, which is much higher than the current levels. The report said that the equitieies in the country appear to be performing well compared to the MSCI emerging market indexes following a period of fall in oil prices even as there is `poor top-down domestic macro-environment'.

The Morgan Stanley India Strategy prefers technology and consumer discretionary doe stock picking and avoids state-owned banks. It suggests Maruti, Infosys and ICICI Bank among large cap and Dish TV, Tata Motors, DVR and Mindtree among mid cap stocks.

"The Indian equity market has been through a pronounced period of underperformance weighed down by persistent downward revisions to GDP growth expectations, negative revisions to earnings expectations and more recently significant currency weakness have taken a heavy toll on absolute and relative performance," the report said.