Markets Set To Rise Despite Global Risks, Says Morgan Stanley

Morgan Stanley remains bullish on Indian equities for the third quarter of financial year 2026, forecasting that the market is more likely to rise than fall. The brokerage expects improving growth data, a dovish stance from the Reserve Bank of India, and stronger-than-expected corporate earnings to drive positive momentum starting July.

India is witnessing a continuous pickup in government spending and early signs of policy easing by the central bank, the brokerage said. This combination, alongside moderating inflation, sets a favourable backdrop for equity performance. Lending growth is also expected to accelerate with lower interest rates, while private capital expenditure could improve if global uncertainties begin to ease.

Crucially, the upcoming earnings season may surprise to the upside, according to Morgan Stanley. A combination of soft base effects, operational efficiency, and steady consumer demand positions many sectors to outperform consensus expectations. The brokerage also anticipates further policy support from the RBI, including a potential 25-basis point rate cut in the fourth quarter.

However, global risks remain the key swing factor. India’s equity performance continues to be tied to global cues—particularly geopolitical tensions, trade policies, and potential recession risks in developed economies.

Although India has traditionally been viewed as a low-beta market, Morgan Stanley notes that in a broad-based global equity sell-off, domestic stocks would still be affected. A sharp decline in oil prices, for instance, could reflect worsening global macro conditions.

Despite these risks, the firm highlights that retail investor resilience and strategic foreign positioning offer a cushion. Indian equities continue to enjoy a scarcity premium, and structural reforms such as GST rationalisation and infrastructure investment lend further support to the long-term story.

Valuations, while elevated by historical standards, remain justified by the earnings potential. Even with short-term volatility, India’s broader growth trajectory and policy stability make it one of the most attractive investment destinations among emerging markets, Morgan Stanley said.