India Remains 'Market To Beat', 2025 Will Be Stock Picker's Market, Says This Brokerage

With the calendar about to turn to 2025, India's equity market retains a bullish trajectory, supported by robust fundamentals and a relatively insulated position in the global economy, according to Morgan Stanley.

According to the brokerage's 2025 India Strategy Outlook, the country is poised to be a standout performer among emerging markets, offering a potential 14% upside for the BSE Sensex by December 2025.

India's strong macroeconomic fundamentals are underscored by fiscal consolidation, positive real growth rate, and inflation targeting, stated the brokerage. A declining primary deficit is expected to crowd in private investments, further fuelling the growth cycle, it said.

Earnings are projected to compound at 17-20% annually over the next four years as per the report. Key contributors include:

• Emerging private capex cycle.

• Corporate balance sheet deleveraging.

• Increased discretionary consumption.

Morgan Stanley also highlighted that India's equity market has reduced volatility and beta relative to other emerging markets, reflecting increased domestic investor participation and a stronger economic base.

Morgan Stanley suggests a pivot towards cyclicals and small-to-mid-cap stocks, stating:

• Overweight: Financials, consumer discretionary, industrials, and technology.

• Underweight: Energy, healthcare, and utilities.

2025 is expected to be a stock picker's market, said the brokerage, with opportunities in:

• Luxury retail, and travel within consumer discretionary.

• Green hydrogen, renewables, and mobility in the industrials and energy sectors.

• IT services, leveraging global outsourcing trends.

While India's growth story is compelling, here are the risks that Morgan Stanley thinks could temper the optimism:

• Global Headwinds: A potential slowdown in global growth, rising oil prices, and geopolitical tensions could impact earnings.

• Domestic Challenges: Policy execution, judicial bottlenecks, and low agricultural productivity remain hurdles, as per the report.

Morgan Stanley predicts the following market case projections for the BSE Sensex:

• Base Case (50% probability): 93,000 points (+14% upside).

• Bull Case (30% probability): 105,000 points (+30% upside), aided by lower oil prices and successful policy reforms.

• Bear Case (20% probability): 70,000 points (-22%), driven by surging oil prices and a global slowdown.

As India's share in global GDP and market capitalisation continues to rise, its long-term equity story gains further strength, said Morgan Stanley. Key transformative themes for the country's economic uptick include burgeoning middle class driving consumption, innovations in deep technology and green energy, and a steady transition to INR-based trade and free trade agreements.

CLSA, on the other hand, is of the view that India's financial growth is tracking "clearly short" of the official estimate of 7.4%, and less than one-fourth of indicators point to growth advancing.

While there has been a marginal pick up in the manufacturing and mining sector, a decline in direct tax collections, widening trade deficit, and falling forex reserves suggest macro weakness in the long-term story, stated the brokerage.