India is set to see a surge in investments, according to Morgan Stanley , which named several stocks it thinks could benefit from rising capital expenditure in the economic powerhouse. In a note entitled “How to Play India’s Coming Capex Boom,” Morgan Stanley analysts said it was expecting supply-side factors and to align with improving demand, boosting investment to gross domestic product. “A likely capex boom makes Indian stocks look inexpensive,” Morgan Stanley analysts led by Girish Achhipalia, wrote. “The most important ingredient in profits is the rate of investment. In turn, higher profits drive investments creating a virtuous cycle of higher wages, more consumption, more investments and more profits.” The bank sees India’s investment rate hitting 36% of its GDP in the next five years, up from the current rate of around 31%. This implies that capex could grow by an annual compounded growth rate of 16.7% through 2027, the bank added. India is the world’s fifth-biggest economy and is projected to post GDP of $3.53 trillion in 2022, according the International Monetary Fund. Stock picks Morgan Stanley sees industrials and financials as the main beneficiaries of the capex boom. “Capital goods, engineering and construction as well as large banks are a direct play on India’s rising capex,” Achhipalia added. One of the bank’s top picks is India’s largest construction firm Larsen & Toubro . The bank believes L & T is “in a sweet spot” to benefit from the growth in investments, with the stock price having a “strong correlation” with public capex. The stock is also attractively valued, Achhipalia added. Morgan Stanley has a price target of 2,178 Indian rupees ($27.50) on the stock, which closed at around 1,962 Indian rupees on Monday, representing a potential upside of 11%. Read more Forget oil — coal is hot right now. Here are 2 stocks to play it, according to the pros Sterling has been tanking versus the dollar. Here’s how low it could go, according to the pros Want to invest in real estate? These REITs are among analysts’ favorites Morgan Stanley also likes ICICI Bank and State Bank of India (SBI). “Banks with liquidity or liability franchise are best placed to deliver profitable revenue growth … Large banks are best placed to capitalize, we believe. ICICI and SBI remain our preferred picks to play the capex cycle,” Achhipalia said. Achhipalia believes ICICI is one of the best placed amongst private banks to deliver strong earnings in the current cycle and has ascribed a price target of 1,225 Indian rupees on the stock. Shares of ICICI closed at around 907 rupees on Monday, which implies a potential upside of 35.1%. He also “materially” raised his loan growth for SBI — India’s largest public sector bank. The stock is also trading below its long-term average, making it look attractive from a valuation perspective. Morgan Stanley has a price target of 675 Indian rupees on SBI, which closed at around 555 Indian rupees on Monday — an implied upside of 21.6%.