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After several months of weak performance, Indian stocks could soon start recovering, according to Morgan Stanley. The factors that were weighing the market down, slow growth, expensive valuations, and the lack of excitement around artificial intelligence, are now starting to fade as India’s economy picks up again.
Since late 2024, India’s stock market has fallen behind global markets. The slowdown came from mid-cycle weakness, delays in a trade deal with the US, and India’s lower-risk reputation compared to faster-moving global markets.
Now, Morgan Stanley expects a “positive growth surprise” in the coming months. The rebound could be supported by both government and central bank actions, such as possible rate cuts and cash reserve ratio (CRR) reductions by the Reserve Bank of India, early government spending, and about ₹1.5 trillion in GST cuts focused on boosting everyday consumption.
Improving relations with China and progress toward an India-US trade deal could also lift investor confidence. The report noted that stock valuations likely hit their lowest point in October.
Morgan Stanley also sees India entering a long-term growth phase. The country’s lower dependence on oil, growing export strength, and improved control over government finances are helping reduce imbalances in savings and could lead to lower long-term interest rates. With inflation becoming more stable and growth less volatile, the firm believes India could justify higher stock valuations, a scenario it calls “high growth with low volatility.”
The brokerage remains positive on sectors tied to India’s economic cycle, such as financials, consumer goods, and industrials, while being cautious about energy, materials, utilities, and healthcare. It expects the market to move more in line with broad economic trends rather than individual stock stories.
However, Morgan Stanley warned that weaker global growth or geopolitical tensions could still pose risks. Even so, if government policies remain steady and company earnings start improving, the firm believes India’s market downturn might already be over.