Stock market today: Sentiment indicator signals buy for 1st time since mid-2022, says Morgan Stanley

Morgan Stanley in a fresh India strategy note said the domestic stock market is gripped by the same old fears, including whether India's economic growth is sustainable, will retail investors bail out, and are not stocks still too rich. The foreign brokerage believes the ongoing correction in the stock market is a buying opportunity, with an understanding that it is hard to time the bottom.

Morgan Stanley's outlook on Indian equities came amid a recent global fund manager survey by BofA Securities, where most participants expected a further decline in the domestic equity market. Morgan Stanley said the growth slowdown has unnerved the stock market, but that may return soon.

The BSE Sensex and the NSE Nifty have dropped 3.3 per cent each in January so far.  The bigger falls were observed in midcap and smallcap indices, which plunged 11-15 per cent this month so far. Morgan Stanley said the stock price fall has been on falling trading volumes, implying an absence of a bid rather than a forceful selling. Private financials appear to be offer the best risk-reward ratio, it noted.

The key risk to the Indian market are failing of policy to deliver, deepening of the US market correction and a slowdown in the global growth. For now, Morgan Stanley's proprietary sentiment indicator has gone into buy territory for the first time since mid-2022.

"While it can go lower (like it did in March 2020), we do not believe fundamentals warrant a major deterioration in stock market sentiment from here. Government expenditure is accelerating. The fiscal consolidation in F2026 is likely to be much smaller than in F2025. The RBI is committing itself to more liquidity and possibly less regulatory overburden," Morgan Stanley said.

The foreign brokerage said that the most important reasons for the slow growth patch are getting behind us. It noted that retail investors have exhibited resilience, which sets the stage for a reversal in broad market performance in the coming days.

Meanwhile, BlackRock Investment Institute said it is bullish on India’s large caps in the long term, owing to the recent corrections in the space that have made it suitable for investment.

"One may expect returns of about 11-12 per cent in the 5 year period. In the near-term, we stay positive on IT services, consumption related themes, real estate and select industries benefitting from government incentives to boost onshore manufacturing. At the current time, investors can keep a near- term view and focus on themes and keep a tactical approach due to the global uncertainties with US policy under Trump," it said.