India's internet sector has entered a phase of sharper stock-specific performance, with Morgan Stanley reiterating its positive stance on select names even as competition and earnings risks continue to weigh on the broader space. The brokerage has maintained an Overweight rating on Eternal, calling it its top pick in the sector.
Morgan Stanley said the company stands out due to its strong execution track record, healthy balance sheet and exposure to long-term industry growth trends.
According to Morgan Stanley, India's internet market-cap index has fallen about 8% from its peak at the end of March 2026, broadly tracking the decline seen in the US internet market-cap index. However, the pullback has not been uniform, with significant divergence emerging between individual companies.
Over the past month, Eternal outperformed Swiggy by 11 percentage points, while Shadowfax outpaced Delhivery by 28 percentage points. Meanwhile, Paytm outperformed Pine Labs by 14 percentage points.
Current Risks
Morgan Stanley noted that the private equity and venture capital funding environment remains challenging, with trailing 12-month funding activity down 23% year-on-year. Even so, capital continues to flow into select high-growth segments, particularly quick commerce, instant services and other rapid-delivery business models.
Intensifying competition in quick commerce and instant services is likely to keep pressure on margins and profitability across the sector. In addition, any slowdown in consumer demand could affect segments such as online travel and discretionary spending.
Among its preferred ideas, Morgan Stanley continues to favour Eternal, Pine Labs and Shadowfax. The brokerage expects competition-related concerns to remain an overhang for quick-commerce and instant-services players in the near term, although underlying demand trends and adoption rates remain supportive of long-term growth.
Within logistics, Morgan Stanley sees favourable industry tailwinds as third-party logistics providers continue to gain market share from captive delivery networks. While Delhivery is rated Equal Weight, the brokerage believes both Delhivery and Shadowfax are well positioned to benefit from the structural expansion of e-commerce logistics in India.
In the e-commerce segment, Morgan Stanley expects Meesho to deliver one of the strongest growth profiles among peers. The brokerage also sees scope for gradual improvement in profitability as the company scales operations and strengthens monetisation.
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