Morgan Stanley sees big potential in India’s booming economy, warning that investors might be missing a key turning point in the growth cycle. With stronger earnings and higher market peaks on the horizon, the global investment firm is shaking up its strategy to focus on homegrown sectors that could ride the wave.
In its “Gunning for Growth” approach, Morgan Stanley now favors financials, consumer discretionary, and industrials—going overweight on these areas. At the same time, it’s dialing back on energy, materials, utilities, and healthcare, taking an underweight position.
The firm points out that tough times from the global slowdown and sky-high valuations in late 2024 are fading fast. This clears the path for India to shine brighter compared to other markets, thanks to solid structural boosts like better economic stability, less reliance on oil in GDP, a surge in services exports, tighter fiscal policies, and steadier inflation.
These factors could push stock valuations higher with better price-to-earnings multiples and lower real interest rates. Morgan Stanley highlights how India’s mix of fast growth, low market swings, easing rates, and stable stocks sets up a major re-rating for the market.
Boosting this outlook, government policies are leaning hard into growth. Recent interest rate cuts by the RBI, reductions in cash reserve ratios, big upfront spending on infrastructure, and lower GST rates are all designed to spark everyday consumer spending.
The brokerage expects more good news ahead, like upward tweaks to company earnings forecasts, another RBI rate cut this quarter, and fresh policy changes. A possible India-US trade deal that slashes tariffs could add even more fuel to the fire.
Foreign portfolio investors have pulled back to record lows, which Morgan Stanley views as a golden opportunity for fresh inflows once growth picks up steam.
That said, the firm isn’t ignoring the risks—think global economic dips or rising geopolitical tensions. Still, India’s strengthening basics and pro-growth policies make it a strong bet for the long haul.
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