Morgan Stanley has struck a bullish note on Indian equities, stating that the market’s recent bottom may already be behind it and that a combination of accelerating earnings growth, improving sentiment and attractive valuations could pave the way for a strong year ahead.
In its latest India Equity Strategy Playbook titled “Bottom May Be Behind Us”, the brokerage said Indian equities appear poised for a renewed upcycle as corporate earnings growth begins to accelerate after a period of moderation.
Earnings upcycle likely underway
Morgan Stanley believes India is once again entering an earnings growth cycle, supported by continued capital expenditure across multiple sectors. The brokerage highlighted energy, defence, semiconductors, fertilisers and data centres as some of the key beneficiaries of the investment cycle.
According to the report, investments as a share of GDP could rise to 37.5% over the next five years, providing a strong foundation for corporate earnings expansion. The firm noted that India’s policy backdrop remains supportive, aided by fiscal stability, moderate real interest rates and an undervalued currency.
The brokerage added that earnings growth acceleration could continue for several quarters, although near-term risks remain, including geopolitical tensions in the Middle East and the possibility of adverse weather conditions affecting agricultural output.
India remains a defensive growth market
Morgan Stanley described India as a “defensive growth market” and argued that the country stands out globally because of its combination of economic growth and relatively stable macroeconomic fundamentals.
The report pointed to several supportive factors, including strong domestic equity inflows, an expanding IPO pipeline, low foreign investor positioning and valuations that are closer to historical trough levels relative to other markets.
The brokerage also noted that India’s share of global corporate profits now exceeds its weight in global equity indices by the widest margin seen since the period following the 2008 global financial crisis.
Long-term story remains intact despite AI concerns
Morgan Stanley acknowledged that one of the persistent concerns for Indian equities is the absence of a direct artificial intelligence leadership position compared with some global technology markets. It also highlighted the possibility of AI-led disruption affecting parts of India’s IT services industry.
However, the brokerage believes the broader long-term investment case for India remains intact.
The report argues that India could emerge as a major beneficiary of a multi-polar global economy, with manufacturing likely to contribute a larger share of GDP over the coming decade. It also sees significant opportunities in energy infrastructure, data centres and digital infrastructure.
Morgan Stanley further noted that India’s young population, rising incomes and growing consumer base continue to provide structural support for economic growth.
The brokerage estimates that India contributed around 18% of global GDP growth in 2025 and expects that contribution to increase further in the coming years.
Preferred sectors and portfolio positioning
On portfolio strategy, Morgan Stanley prefers domestic cyclical sectors over defensives and externally linked businesses.
The brokerage is overweight on:
Financials
Consumer discretionary
Industrials
At the same time, it is underweight on:
Energy
Materials
Utilities
Healthcare
Interestingly, Morgan Stanley believes IT services could emerge as a potential dark horse despite current concerns around artificial intelligence. The brokerage said global companies may increasingly rely on Indian IT firms as they build and deploy AI applications and solutions.
Key risks highlighted
While maintaining a constructive view, Morgan Stanley flagged several risks that could challenge its outlook.
The report identified prolonged geopolitical tensions, slowing global growth, weather-related disruptions, weak agricultural productivity, capacity constraints in the judicial system and labour-market disruptions arising from AI adoption as key concerns.
Nevertheless, the brokerage believes India’s structural growth story remains compelling and argues that if nominal GDP growth can move towards 12% over the coming years, Indian equities could continue compounding strongly through the remainder of the decade.
Disclaimer
The views and investment recommendations expressed by Morgan Stanley are its own and do not represent the views of this publication. Investors should conduct their own research and consult financial advisors before making investment decisions.