Stock market strategy: Sensex, Nifty fall 3-4% in 30 days but Morgan Stanley sees strong year ahead - Here's why
Morgan Stanley analysts noted that India was 18 per cent of global GDP growth in 2025, a number that is likely to be higher in the coming years.
- Jun 2, 2026,
- Updated Jun 2, 2026 8:36 AM IST
Morgan Stanley's Equity Strategists Ridham Desai and Nayant Parekh in a note titled "India Equity Strategy Playbook" said domestic equities appear poised for a strong year ahead. The strategists said earnings growth acceleration is likely in the pipeline and valuations and sentiment are coming off near extremes. "Bottom may be behind us," Desai and Parekh wrote on June 1.
For equity investors, broad-based growth acceleration, strong domestic equity flows, an emerging IPO pipeline, the worst-ever trailing 12-month relative performance, relative valuations at previous troughs and a multiyear low foreign positioning make for a compelling mix, Morgan Stanley noted suggested.
"India's share of global profits exceeds its global index weight by the highest margin ever ex-2009," the note said adding that the policy backdrop is also supportive with an undervalued currency, modest real rates and fiscal stability.
This made Morgan Stanley Strategists believe India earnings are once again in the throes of an upcycle. The key short-term risks to this outcome include prolonged strife in the Middle East and a severe drought due to bad weather in the coming summer sowing season, they said.
"The earnings growth acceleration could last several quarters beyond these near-term hurdles given our strong view on capital spending across numerous sectors including Energy, Defence, Semiconductors, fertilizers and data centres - we expect investments to GDP to rise to 37.5 per cent in the coming five years," Desai and Parekh said.
Growing consumer base is seen as India's key leverage, along with rising incomes of a relatively young population.
Morgan Stanley analysts noted that India was 18 per cent of global GDP growth in 2025, a number that is likely to be higher in the coming years.
"India is one of the fastest-growing places for energy infrastructure and this could fuel a boom in data centres. Given the low starting point of labour productivity, India is a major beneficiary of Al-led 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," they pointed out.
Morgan Stanley prefers domestic cyclicals, followed by defensives and external-facing sectors. It is overweight on financials, consumer discretionary and industrials; underweight on energy, materials, utilities and healthcare.
"We are capitalization-agnostic. IT services could be the dark horse as the world pivots to these companies to build Al applications companies and solutions. The key risks to India are mostly external, including geopolitical tensions and slowing global growth. Back home, we worry about the low productivity in farming, capacity constraints in the judiciary and embodied Al hitting decision," Desai and Parekh said.
Morgan Stanley's Equity Strategists Ridham Desai and Nayant Parekh in a note titled "India Equity Strategy Playbook" said domestic equities appear poised for a strong year ahead. The strategists said earnings growth acceleration is likely in the pipeline and valuations and sentiment are coming off near extremes. "Bottom may be behind us," Desai and Parekh wrote on June 1.
For equity investors, broad-based growth acceleration, strong domestic equity flows, an emerging IPO pipeline, the worst-ever trailing 12-month relative performance, relative valuations at previous troughs and a multiyear low foreign positioning make for a compelling mix, Morgan Stanley noted suggested.
"India's share of global profits exceeds its global index weight by the highest margin ever ex-2009," the note said adding that the policy backdrop is also supportive with an undervalued currency, modest real rates and fiscal stability.
This made Morgan Stanley Strategists believe India earnings are once again in the throes of an upcycle. The key short-term risks to this outcome include prolonged strife in the Middle East and a severe drought due to bad weather in the coming summer sowing season, they said.
"The earnings growth acceleration could last several quarters beyond these near-term hurdles given our strong view on capital spending across numerous sectors including Energy, Defence, Semiconductors, fertilizers and data centres - we expect investments to GDP to rise to 37.5 per cent in the coming five years," Desai and Parekh said.
Growing consumer base is seen as India's key leverage, along with rising incomes of a relatively young population.
Morgan Stanley analysts noted that India was 18 per cent of global GDP growth in 2025, a number that is likely to be higher in the coming years.
"India is one of the fastest-growing places for energy infrastructure and this could fuel a boom in data centres. Given the low starting point of labour productivity, India is a major beneficiary of Al-led 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," they pointed out.
Morgan Stanley prefers domestic cyclicals, followed by defensives and external-facing sectors. It is overweight on financials, consumer discretionary and industrials; underweight on energy, materials, utilities and healthcare.
"We are capitalization-agnostic. IT services could be the dark horse as the world pivots to these companies to build Al applications companies and solutions. The key risks to India are mostly external, including geopolitical tensions and slowing global growth. Back home, we worry about the low productivity in farming, capacity constraints in the judiciary and embodied Al hitting decision," Desai and Parekh said.