January–March quarter may deliver upside surprises in India Inc.'s earnings, Morgan Stanley said in its latest India Equity Strategy report. The New York-headquartered investment banker's positive view of India Inc.'s earnings came at a time when a decline in earnings growth has affected overall market performance.
"We remain ahead of the consensus on earnings," Morgan Stanley said. According to the brokerage, earnings growth is relatively turning up. Even the views based on more conservative consensus estimates are indicating a rise from this point.
Indian markets have ignored the Reserve Bank of India's rate cut and consumption-boosting efforts penned in the Budget for the financial year 2026 in early February.
This less volatile characteristic of the Indian market has made it an ideal market in the backdrop of global macro uncertainties which other markets are dealing with. Morgan Stanley's sentiment indicator is in a 'strong buy' zone.
Valuations have also become the most attractive since pandemic, Morgan Stanley said. At present, the Indian market is great for stock picking, it added.
Morgan Stanley is overweight on financials, consumer discretionary, industrials and technology. The brokerage remains underweight on all other sectors.
Morgan Stanley pegs India's GDP growth at 6.3% for the financial year 2025 and 6.5% for the FY26. Economic growth will likely recover after a slowdown in the second half of the calendar year 2024 on support from fiscal and monetary policies. India's macro stability is expected to remain in the comfort range, which will provide relief to the policy makers, according to the brokerage.
India's long-term growth story remains strong. It is on a path to increase its share in global output in the coming decades based on its strong foundational factors. Robust population growth, a functioning democracy, macro-stability-influenced policies, better infrastructure, and a rising entrepreneurial class will make India the most 'sought-after' consumer market, Morgan Stanley said.
Indian economy is also expected to undergo a significant transformation which will be driven by energy transition, increased credit to GDP, and growth in manufacturing share, Morgan Stanley said.
Risks are mostly stemming from the external factors for Indian equities at the moment, the brokerage said. On Monday, another investment banker, Goldman Sachs, said that global headwinds will likely keep Indian markets volatile despite Indian equities surviving the worst.
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