Morgan Stanley Predicts Potential Revival for Indian Stocks, Cites Global Factors as Key

International brokerage Morgan Stanley has said that Indian shares may see a revival in the near future, but global factors will be important.

In its recent report, the company admitted that identifying market bottoms is difficult, but "buying Indian equities could prove rewarding." It said that India is coming out of a phase of sluggish growth and that global news is turning positive.

Indian stocks are now cheaper than they have been at the Covid-19 market low. The BSE Sensex and benchmark NSE Nifty 50 are down 11.7% and 13.3% from their past highs, respectively.

Morgan Stanley pointed out that the Union Budget is growth-friendly, especially with higher capital spending and lower subsidy spending. Also, Reserve Bank of India rate cuts and liquidity infusion are likely to give a lift.

The note further stated that India's continuing tax reforms are likely to bring in more foreign direct investment.

Crude prices have weakened, and world geopolitics are favorable, with hostilities most probably easing. Moreover, "the dollar has corrected, and India's real effective exchange rate has declined," the report says.

Morgan Stanley had estimated that India would be resuming outpacing emerging markets in the near term, subject to global factors not turning south. The brokerage stressed that good macroeconomic stability, better terms of trade, mid- to high-teens annual earnings growth over the next three to five years, and a stable source of domestic capital are major factors underpinning potential upside.

In another report, Morgan Stanley said that while the US reciprocal tariff increases might have a controllable direct effect, the indirect impact—mainly through uncertainty to business sentiment—is a bigger worry. Yet the firm thinks domestic policy will remain supportive of growth, with further action set to be introduced if risks on the downside do emerge.