India's equity market offers a compelling opportunity, which is skewed in favor of stock pickers, as the nation is likely to capture an increasing proportion of world output in the next few decades.
The growth is supported by robust structural fundamentals like a fast-growing population, a stable democratic system, macroeconomic stability-led policies, enhancing infrastructure, an emerging entrepreneurial class, and rising social indicators, a Morgan Stanley report published on Tuesday stated.
Consequently, India is also likely to rank among the global consumer markets with the highest demand, experience high levels of energy transition, watch credit-to-GDP ratios improve, and see industry contribute increasingly to the aggregate economy.
"Though top-end indicators were mixed over recent weeks, they are decidedly improving from a couple of months back. We forecast economic growth to pick up from a deceleration in the second half of 2024, with a boost from fiscal and monetary interventions, along with a bounceback in service exports. Our expectations put GDP expansion at 6.3% in FY25 and 6.5% in FY26," the report added.
With macroeconomic stability likely to stay in a comfortable zone, the policymakers will be more free in decision-making.
"We are still leading consensus in earnings expectations. Interestingly, India's relative earnings growth is gaining momentum, even when measured on conservative estimates. At the same time, valuations are at their most compelling levels since the Covid pandemic," the report pointed out.
India's lower beta nature makes it an attractive market in today's uncertain global macroeconomic climate. Moreover, the company's sentiment indicator also points to a strong buying opportunity.
In contrast to the broad macroeconomic-driven market trends since the pandemic, the situation is likely to benefit a stock pickers' strategy, Morgan Stanley said.
"A possible upgrade in India's fundamentals is still not entirely reflected in market prices. We believe the country will recover lost ground relative to its peer economies through the rest of 2025," the report said.
Earnings surprises can materialize in the current quarter, with valuations looking reasonable across market segments. Financials have driven the outperformance so far, a trend likely to continue, while consumer discretionary and some industrials may also experience positive momentum, the report concluded.
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