Indian Equities To ‘Regain Mojo’ In 2026, Says Morgan Stanley's Ridham Desai — Here's What He’s Backing
The long-term story is gaining strength with government policy in action. Policy pivot is backing the recovery in equities, Desai said.
In 2026, Indian equities will likely change its position as one of the worst performing markets among emerging markets in three decades, according to Morgan Stanley India's Managing Director Ridham Desai. The theme of 2026 will be stock-picking, compared to 'stock picking' in this calendar year.
The long-term story is gaining strength with government policy in action. Policy pivot is backing the recovery in equities, Desai said. The Indian equity markets will likely reverse the worst performance relative to the emerging markets in 31 calendar years.
In the next 12 months, earnings growth will go beyond mid-cycle slowdown experience as policy pivot has supported strong recovery in nominal growth, he said in the India Strategy note. The structural domestic bid remains intact.
"Relative valuations are consistent with the improved forward performance," he said.
Morgan Stanley forecasted 13% upside in the BSE Sensex index till December, 2026 in its base case scenario, said Desai. In the base case, the global brokerage also assumed that India will likely strike a deal with the US soon.
It expects a 17% CAGR in the BSE Sensex earnings through financial year 2028.
The brokerage also expects another 25-basis-point reduction in interest rate and a positive liquidity environment as the base case for monetary policy.
Although retail investors will stay ahead of new supply, issuance will bunch up, Desai said in the note.
Morgan Stanley recommends focusing on stocks impacted by domestic cyclical rather than the ones depend on external factors. The brokerage is overweight on Financials, Consumer Discretionary, Industrial, and Underweight Energy, Materials, Utilities, and Healthcare.
The biggest risk for India is a more-than-expected slowdown in the global economy, Morgan Stanley said. Although India can easily outperform a global sell-off given its low beta, but a slowdown in the global economy will cap absolute upside.
