Morgan Stanley Sees Brighter Outlook For Indian Equities As Soft Earnings Ends

Morgan Stanley has turned more positive on Indian equities, citing emerging signs of recovery as the soft earnings phase that began in the September quarter of 2024-25 nears its end.

In a report released on Monday, the brokerage said while macro and geopolitical uncertainties remain, investor confidence is improving thanks to a more stable growth outlook, GST rate reform, robust economic indicators, and better India-China relations. However, global risks like a US slowdown, sticky inflation, and geopolitical tensions could still weigh.

The report pointed out that markets are currently pricing in slower-than-expected industrial growth and yield curve trends that imply caution. Yet, improving near-term trends and better-than-forecast earnings hint at a recovery.

Morgan Stanley retained its BSE Sensex target of 89,000, about 10% above current levels, and said the outlook rests on policy consistency, fiscal consolidation, private capex, and supportive real rates. It expects a Fed rate cut, a US soft landing, and a successful India-US trade deal to further boost sentiment.

Sector-wise, the brokerage remains overweight on financials, consumer discretionary, energy, materials, and healthcare, but underweight on industrials. It said the market would favour stock pickers, adding it remains “capitalisation-agnostic.”

It also expects a re-rating of Indian equities, driven by structural positives like macro stability, strong demographics, digital infrastructure, and improved social outcomes.