India Market Update: Addressing Volatility and Seeking Growth

Indian Stock Market Weakness Offers Long Term Buying Opportunity, Says Morgan Stanley​

Mumbai, March 4: Even as Indian equities struggle amid volatility and subdued sentiment, global brokerage Morgan Stanley believes the current market phase presents an attractive entry point for long term investors.

In a report released on Wednesday, the brokerage maintained that the fundamental structure of the Indian economy remains intact, with corporate earnings expected to strengthen into 2026 despite short term headwinds.

Earnings Cycle Set to Turn After Six Quarter Slowdown​

According to the report, Indian equities have been reacting more sharply to negative developments than to positive news, raising concerns among investors about potential structural weaknesses. However, Morgan Stanley disagreed with this interpretation, attributing the recent weakness to market positioning and technical factors rather than deep rooted economic challenges.

The brokerage noted that corporate earnings growth is already showing signs of recovery after a six quarter slowdown. It expects this improvement to gather pace through 2026, supported by a more accommodative policy environment.

Reflationary measures by the Reserve Bank of India and the government are expected to provide further momentum. Rate cuts, bank deregulation, liquidity infusion, sustained capital expenditure, tax relief measures, and a growth supportive budget are contributing to a stronger macroeconomic backdrop.

Policy Shift and Global Developments Add Support​

The report highlighted that India’s post Covid hawkish policy stance has now eased, creating conditions more conducive to economic expansion. Additionally, trade agreements and improving relations with China have strengthened the external environment.

The brokerage also pointed out that the Indian currency appears undervalued, while domestic investor flows remain resilient, helping stabilise the market during periods of volatility.

Valuations Near Historical Lows Despite Weak Returns​

Despite supportive fundamentals, stock market performance has remained underwhelming. Trailing 12 month returns are among the weakest seen historically, and relative valuations are close to previous lows.

The report observed that India’s share in global corporate profits significantly exceeds its weight in global indices. It also noted that the BSE Sensex is trading at historically inexpensive levels when compared to gold. At the same time, foreign portfolio investor positioning has weakened in recent months, adding to the pressure.

Geopolitical Risks and AI Theme Impact Sentiment​

Morgan Stanley attributed part of the recent underperformance to rising geopolitical tensions in the Middle East. Although India’s oil intensity has declined over the years, the country remains dependent on oil imports. Any uncertainty in oil supply chains or production can weigh on investor sentiment.

The absence of a clear artificial intelligence theme in domestic markets has also affected flows. While global investors are allocating capital to AI linked stocks elsewhere, Indian equities have not benefited from a similar narrative. Concerns over potential disruption to India’s services exports due to AI developments have further influenced investor outlook.

Overall, the brokerage views the current correction not as a structural breakdown but as a phase of adjustment, positioning Indian equities as a compelling long term opportunity despite near term challenges.