Morgan Stanley's Ridham Desai Sees Bullish Turn For Indian Equities, Bets Big On Domestic Recovery

Morgan Stanley is expecting a resurgence in Indian stock market in the near future, thanks to improving valuations and a turning growth cycle that could catch the broader market by surprise.

In his latest note, Morgan Stanley India's Managing Director Ridham Desai has outlined a bullish case for Indian markets, suggesting that it is poised for a sharp recovery after witnessing an elongated period of trailing performance.

Morgan Stanley suggests India's growth indicators are currently ahead of consensus estimates, which bodes well for the market, as it signals positive earnings revisions that, in turn, could boost investor sentiment.

A key driver of this optimistic outlook on Indian market is the supportive policy from the Reserve Bank of India, which has already taken multiple steps to boost liquidity and loan growth.

More structural reforms are expected going ahead, including privatisation and potential capital market reforms in the upcoming Union Budget. Optimism has been further exacerbated by the prospect of an India-US trade deal, which in turn, could reduce US tariffs on Indian goods.

Morgan Stanley's strategy appears to pivot towards domestic cyclicals rather than defensives or external-facing sectors. Consequently, the firm has placed an 'overweight' rating on financials, consumer discretionary and industrials.

These are the sectors that are likely to benefit most from a potential economic and market revival.

But on the flip side, Morgan Stanley remains 'underweight' on energy, materials, utilities and healthcare sectors. Theses sectors may face some pressure going forward, even as the market looks to recover.

While Foreign Portfolio Investor (FPI) positioning remains near historic lows amid the ongoing cautious sentiment, the note suggests this could turn favorable if growth signals materialise, prompting renewed net buying.

However, Morgan Stanley warns that downside risks still persist, primarily arising from slowing global growth and worsening geopolitical tensions.