India is still the market to beat, Morgan Stanley says

Investing.com -- India’s equity market remains the preferred investment destination among emerging markets, with Morgan Stanley (NYSE:MS) projecting a 14% upside for the benchmark BSE Sensex by December 2025 in its base case.

Supported by robust earnings growth, macroeconomic stability, and strong domestic inflows, India’s fundamentals set it apart, even as global growth risks and near-term challenges loom.

“With strong earnings, macro stability and domestic flows, it is hard to argue against India's investment case,” analyst wrote.

India benefits from improved terms of trade, a flexible inflation-targeting regime, and steady non-portfolio foreign flows. These factors have reduced India’s beta to emerging markets to around 0.4, underpinning its premium valuation.

With earnings projected to grow at an annual rate of 18-20% over the next four to five years, India is set to capitalize on a private capital expenditure cycle, deleveraging of corporate balance sheets, and a structural rise in discretionary consumption.

A consistent source of domestic risk capital ensures that local demand for equities remains robust, mitigating external volatility and supporting equity valuations.

Morgan Stanley’s base case factors a continued fiscal consolidation, rising private investment, and a favourable real growth-to-real interest rate gap.

Combined with stable oil prices, an absence of U.S. recession, and a modest reduction in interest rates, these factors are expected to propel Sensex earnings to compound at 17.3% annually through FY27. The brokerage’s forecast remains 15% above consensus for this period.

The Indian market is expected to be a stock pickers’ market, away from the one driven by top down or macro factors since COVID years.

Morgan Stanley says to overweight on cyclicals such as financials, consumer discretionary, industrials, and technology, while have an underweight on other sectors. Small and mid-cap stocks are favoured over large caps, reflecting confidence in domestic growth drivers.