Morgan Stanley Sees Strong India Equity Upcycle as Earnings Growth, Capex Boom and Valuations Drive Bullish Outlook

In its India Equity Strategy Playbook for the Asia Pacific region titled “Bottom May Be Behind Us,” the firm stated that India’s corporate earnings are entering a fresh and sustained upcycle that could extend over several quarters. According to the report, this momentum is being reinforced by robust capital expenditure across key sectors including energy, defence, semiconductors, fertilisers and data centres.

Morgan Stanley noted that investments as a share of India’s Gross Domestic Product are expected to rise to 37.5 per cent over the next five years. This expansion, it said, is being supported by a favourable policy environment, an undervalued currency, moderate real interest rates and fiscal stability.

The report highlighted several structural drivers supporting the investment case for India, including broad-based economic acceleration, strong domestic equity inflows, and an emerging initial public offering pipeline. It further observed that current relative valuations are near previous trough levels, while India’s share of global profits exceeds its weight in global indices by the widest margin since the period after 2009.

Despite global economic uncertainty and ongoing debates around artificial intelligence, Morgan Stanley maintained that India’s long-term growth trajectory remains intact. It stated that India continues to benefit from structural strengths, even as it acknowledges risks stemming from oil import dependence and potential artificial intelligence-driven disruption to services exports.

The brokerage also emphasised India’s position in a multipolar global economy, suggesting that the country could emerge as a key beneficiary of shifting global dynamics. It expects the share of manufacturing in India’s GDP to rise over the next decade, supported by a young workforce, rising incomes and expanding domestic consumption.

India accounted for 18 per cent of global GDP growth in 2025, and is expected to contribute even more in the coming years, according to the report. Morgan Stanley also pointed to potential gains from artificial intelligence-driven productivity improvements, stating that if nominal growth reaches 12 per cent—considered achievable—the equity market could deliver strong compounding returns through the end of the decade.

From an investment strategy perspective, the firm continues to prefer domestic cyclical sectors over defensive and externally oriented industries. It remains overweight on financials, consumer discretionary and industrial sectors, while maintaining an underweight stance on energy, materials, utilities and healthcare.

The report concludes that India’s equity market is entering a phase of sustained structural strength, driven by earnings expansion, capital formation and resilient domestic demand, reinforcing its position as one of the most attractive long-term investment destinations among emerging markets.