Indian stock markets, despite appearing weak, are offering a favorable buying opportunity for long-term investors, as per a recent report by Morgan Stanley. The report emphasizes that the structural fundamentals of the Indian economy remain robust, with anticipated improvements in earnings growth by 2026, amidst ongoing market volatility. While negative news seems to impact Indian equities more than positive developments, the weakness is attributed to market positioning and technical factors rather than deep-rooted economic issues.
Corporate earnings growth in India is already rebounding after a six-quarter slowdown and is expected to gain momentum in 2026. This positive trend is supported by reflationary policies from the Reserve Bank of India and the government, including rate cuts, liquidity infusion, and growth-supportive Budget measures. The post-Covid hawkish policy stance has relaxed, fostering a more conducive environment for economic growth, while trade agreements and better relations with China further contribute to the optimistic outlook.
Despite these favorable factors, Indian stock performance has been lackluster, with trailing 12-month returns at historical lows and relative valuations near previous levels. India’s share in global corporate profits surpasses its weight in global indices, and the Sensex is trading at historically low valuations compared to gold. Foreign portfolio investor (FPI) positioning has weakened recently, partly due to escalating geopolitical tensions in the Middle East.
The report also highlights concerns over India’s oil dependency, as any disruptions in oil supply chains could impact investor sentiment. Additionally, the absence of a clear artificial intelligence (AI) theme in Indian markets has led to underperformance, as global investors focus on AI-related stocks elsewhere. Some investors worry that AI disruptions may affect India’s services exports.
