India equities poised for strong year ahead as earnings cycle revives: Morgan Stanley
New Delhi, June 2
Indian equities are well-positioned for a strong performance over the next year, supported by an expected acceleration in earnings growth, improving sentiment and attractive valuations, according to a latest report by Morgan Stanley.
In its India Equity Strategy Playbook for Asia Pacific, titled "Bottom May Be Behind Us," the global brokerage said that Indian corporate earnings are entering a fresh upcycle and could sustain momentum for several quarters.
"India earnings are once again in the throes of an upcycle," the report said, adding that the expected growth acceleration could continue beyond near-term challenges due to strong capital spending across sectors such as energy, defence, semiconductors, fertilisers and data centres.
Morgan Stanley highlighted that investments as a share of GDP could rise to 37.5 per cent over the next five years, supported by what it described as a favourable policy backdrop, an undervalued currency, modest real rates and fiscal stability.
The report noted that several market factors create a compelling investment case for India, including "broad-based growth acceleration, strong domestic equity flows, an emerging IPO pipeline," and relative valuations that are close to previous trough levels. It also pointed out that India's share of global profits currently exceeds its weight in global indices "by the highest margin ever ex-2009."
On the long-term outlook, Morgan Stanley said India's structural growth story remains intact despite concerns surrounding artificial intelligence and global economic uncertainties.
"The long-term story is intact notwithstanding the AI debate," the report said. While acknowledging risks from oil imports and potential AI-led disruption to services exports, it argued that India could emerge as a significant beneficiary in a multipolar global economy.
The brokerage expects manufacturing's share in GDP to increase over the coming decade, supported by a young population, rising incomes and growing consumption. It further observed that India accounted for 18 per cent of global GDP growth in 2025 and is likely to contribute even more in the years ahead.
Morgan Stanley also sees India benefiting from AI-driven productivity gains. "If India can lift nominal growth to 12%, which is in the realm of the possible, the equity market could be a strong compounder to the end of this decade," the report said.
From an investment perspective, the firm prefers domestic cyclical sectors over defensives and external-facing businesses. It remains overweight on financials, consumer discretionary and industrials, while maintaining an underweight stance on energy, materials, utilities and healthcare.
— ANI
Reader Comments
This is great news! The fact that manufacturing share in GDP is expected to increase gives me hope for job creation. My cousin just got a job in the semiconductor sector and things are looking up for young Indians. 🇮🇳
Valuations close to trough levels? 😂 Tell that to the guy who bought at 20,000 Nifty. But Morgan Stanley does have a point about earnings recovery and capex spending. Just need to be careful about which sectors to pick.
I'm cautiously optimistic. The AI disruption risk to services exports is real - Bangalore's IT sector is already feeling the heat. But if India can ride the manufacturing wave like China did, we could see something special. Long-term hold for me.
Where were these reports when markets were falling last year? 🧐 Every time FIIs sell, they come out with "buy India" stories. But I do agree that domestic flows and SIPs are the real backbone now. Let's hope the earnings delivery matches the hype!
The report is right about domestic cyclicals - financials and industrials are where the real action is. But I'm surprised they're underweight on healthcare when our pharma exports are booming. Maybe they see something we don't... still, good times ahead for patient investors! 💪
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