The Indian stock market may perform strongly in the coming year. Wall Street’s leading brokerage company Morgan Stanley believes that due to increase in earnings of companies, better valuations and increasing confidence of investors, the market may see a long-term rise.
A period of boom in earnings begins
According to Morgan Stanley, the earnings of Indian companies are again entering a new cycle of growth. Although some risks remain, such as ongoing tensions in West Asia and a weak monsoon, the company believes that earnings growth will remain strong for many quarters to come.
The brokerage expects capital investment (capex) to increase in sectors like energy, defence, semiconductor, fertilizer and data centres. It estimates that the investment-to-GDP ratio could increase to 37.5% in the next five years.
support from the economy
The report says that the Indian stock market can benefit from many macroeconomic factors. These include a relatively weak rupee, controlled interest rates and fiscal stability.
Morgan Stanley believes that strong domestic investment, possibilities of new IPOs, attractive valuations and low stake of foreign investors will help in driving the Indian equity market.
India’s development story continues
According to the report, despite challenges like Artificial Intelligence (AI) and dependence on oil imports, India’s long-term growth story remains strong.
The brokerage believes that India will benefit from the global economy becoming multipolar and the contribution of manufacturing to GDP will increase in the coming decade. Young population and increasing income have also been described as major strengths of India.
Big benefits will come from AI and data center
Morgan Stanley estimates that India will be among the fastest growing markets for energy infrastructure investment, which could lead to a big boom in the data center sector.
The company believes that India can get the most benefit from increasing productivity through AI. If India achieves nominal economic growth of 12%, the stock market could deliver strong returns for the next several years.
Bet on which sectors?
Morgan Stanley has named financial services, consumer discretionary and industrial sectors as its favourites. At the same time, relatively less confidence has been expressed in energy, materials, utilities and healthcare sectors.
The brokerage also believes that the IT services sector may perform better than expected due to the increasing demand for developing AI applications.
Sensex can reach 89,000
Morgan Stanley had estimated in its report released last month that the Sensex could reach 89,000 points in the next 12 months. Company analyst Ridham Desai has set a target of 89,000 for the Sensex by June 2027, which is about 20% more than the current level.
The brokerage believes that the strong domestic economy, increasing private investment, low oil prices and continuously increasing participation of retail investors can take the Indian stock market to new heights.
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