Indian stock market poised for strong growth ahead: Morgan Stanley
New Delhi, June 2
Indian equities are poised for a strong growth phase over the coming years despite recent underperformance against emerging markets, according to a report by Morgan Stanley, which said improving earnings growth, rising investments and supportive macroeconomic conditions continue to strengthen the long-term outlook for the domestic stock market.
In a strategy note, Morgan Stanley analysts Ridham Desai and Nayant Parekh said Indian equities have delivered their weakest trailing 12-month relative performance against emerging market peers on record.
However, the brokerage believes the market's underlying fundamentals remain robust and could support strong compounding returns through the remainder of the decade.
The report said the absence of a direct artificial intelligence-linked market theme has remained one of the biggest challenges for Indian equities at a time when global capital flows are increasingly favouring AI infrastructure, semiconductor and technology-heavy markets.
"The lack of a direct AI play seems to be the most persistent challenge to the equity market," the analysts wrote.
Morgan Stanley also flagged concerns over the potential disruption AI could create for India's IT outsourcing industry, which remains closely linked to global technology spending trends.
However, the brokerage added that India could eventually emerge as a significant beneficiary of AI-driven productivity gains because of its relatively low labour productivity base.
The report said Indian IT services firms could become "the dark horse" as global companies increasingly rely on them to build AI applications and solutions.
Despite the weak relative performance of Indian equities, Morgan Stanley highlighted several positive indicators that are beginning to emerge.
The brokerage noted that 12-month rolling corporate buybacks are nearing record highs and could soon cross nearly $10 billion on a trailing basis, the report said.
Valuations have also become more reasonable. MSCI India is currently trading at a price-to-book multiple of 3.4 times, which Morgan Stanley said historically corresponds with relatively predictable 10-year forward annual returns of around 11 per cent.
— IANS
Reader Comments
Morgan Stanley is always optimistic about India every few years. Meanwhile retail investors like us keep getting trapped in IPOs and FOMO. Let's see if this time it's different.
Finally some positive news after months of Nifty struggling. 🙏 The buyback near record high is a good sign. But we need to focus on making India a hub for AI too, not just services. Our engineering talent is world-class.
Interesting analysis from Morgan Stanley. I've been investing in Indian mutual funds from the US for a decade. The demographics are unmatched, but valuations have always been a concern. 3.4x PB is still high compared to other EMs.
My father always says 'market mein sab kuch ho sakta hai'. But these projections are encouraging. The 11% annual return prediction is in line with what I expect from SIPs. Just hope geopolitics doesn't spoil things like last year.
The lack of AI exposure is a real concern. India missed the chip-making boat and now AI hardware too. But the dark horse comment about IT services is interesting—if TCS and Infosys can pivot to AI solutions, they could lead globally.
As someone who works in an IT firm
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