Morgan Stanley: Indian equities set for strong year on earnings growth

Indian equities are set for a strong year, driven by an accelerating earnings growth and a fresh corporate upcycle, says a Morgan Stanley report. The brokerage highlights attractive valuations, strong domestic flows, and a favourable policy backdrop.

New Delhi [India], June 2 (ANI): 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.

Key Economic Drivers

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.

Compelling Investment Case

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."

Long-Term Outlook Intact

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.

Manufacturing and GDP Growth

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.

Potential for AI-Driven Growth

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.

Investment Strategy and Sectoral View

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)

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