Morgan Stanley Sees Strong Year for Indian Equities
Mumbai, India – Global financial services firm Morgan Stanley remains optimistic about India's equity market performance in the coming year, even as benchmark indices like the Sensex and Nifty have seen a 3-4% decline over the past 30 days. Analysts Ridham Desai and Nayant Parekh, in their "India Equity Strategy Playbook" note, suggest that the market's bottom may already be behind it, citing several compelling factors for a strong rebound.
Morgan Stanley's strategists point to India's growing prominence on the global economic stage. They note that India contributed 18% to global GDP growth in 2025, a figure expected to rise further. Crucially, India's share of global profits now exceeds its global index weight by the highest margin ever, excluding 2009, indicating strong corporate performance potential.
Key Drivers for Optimism
- Earnings Acceleration: A significant acceleration in corporate earnings growth is anticipated, supported by a favorable policy environment, including an undervalued currency, modest real interest rates, and fiscal stability.
- Capital Expenditure Boom: Investments to GDP are projected to climb to 37.5% over the next five years, driven by substantial capital spending across sectors like Energy, Defence, Semiconductors, fertilizers, and data centers.
- Demographic Dividend: India's large and growing consumer base, coupled with rising incomes among its relatively young population, provides a strong foundation for sustained economic expansion.
- AI-Led Productivity Gains: Given its low starting point for labor productivity, India is well-positioned to be a major beneficiary of AI-driven efficiency improvements.
The firm believes that if India can achieve a nominal growth rate of 12%, which they consider feasible, the equity market could deliver strong compounding returns through the end of the decade.
Short-Term Risks and Sector Preferences
While the long-term outlook is positive, Morgan Stanley identifies a few immediate risks, including prolonged geopolitical strife in the Middle East and the potential for a severe drought affecting summer sowing. Domestically, concerns include low agricultural productivity, judicial capacity constraints, and the impact of embodied AI on decision-making processes.
In terms of sector allocation, Morgan Stanley favors domestic cyclicals, followed by defensives and external-facing sectors. They are overweight on financials, consumer discretionary, and industrials, while being underweight on energy, materials, utilities, and healthcare. The analysts also highlight IT services as a potential "dark horse" due to the global pivot towards building AI applications and solutions.