Indian Stocks' Revival On Cards But Conditions Apply, Says Morgan Stanley

Indian stocks could see a revival soon, even as the market has ignored a slew of positive developments, says Morgan Stanley, but global factors will be key for this forecast.

The country's broad market is drawing down rapidly as the bid has faded despite improving fundamentals, analysts at Morgan Stanley said in a Feb. 17 note. "While catching the bottom is difficult, we think buying Indian equities could prove rewarding."

India is coming out of its slow growth patch of the past few months, the brokerage said, adding that the global news has turned better. Stocks are now cheaper than they have been since the Covid-19 bottom, Morgan Stanley said.

The benchmark NSE Nifty 50 and the BSE Sensex have fallen 13.3% and 11.7%, respectively, from the previous peak, triggering the worst fall since 2020.

The budget is good for growth, with rising capex and falling subsidy expenditure, it said. The Reserve Bank of India's rate cut and liquidity commitment will also be a boost, the report said. A slew of tax reforms that India has initiated should enthuse foreign direct investments into India.

Crude oil prices have weakened, and geopolitics are looking better with a likely fading of wars, Morgan Stanley said. "The dollar has corrected, and India's real effective exchange rate has declined."

FPl debt flows have turned up, signalling both comfort with India's macro as well as the currency, it said. However, flows into equities remain a concern. Foreign institutional investors have offloaded stocks worth Rs 1.16 lakh crore in 2025 and sold stocks worth Rs 3.04 lakh crore since September.

India should resume its outperformance to emerging markets in the coming months, Morgan Stanley said. However, this is subject to global cues not surprising negatively.

Strong macro stability with improving terms of trade, mid- to high-teen earnings growth annually over the next three to five years and a reliable source of domestic risk capital are key fundamentals for upside, the report said.