IPO Boom Has Room To Run: Morgan Stanley Assesses No Near-Term Liquidity Strain for Indian Equities

IPO Boom Has Room To Run: Morgan Stanley Assesses No Near-Term Liquidity Strain for Indian Equities​

Morgan Stanley maintains a constructive outlook on the buoyancy of India’s primary market, asserting that the current wave of Initial Public Offerings (IPOs) has ample potential and is unlikely to cause liquidity strain in the near term. The brokerage estimates that this supportive environment could persist for several months before the supply of equity becomes excessive.

The assessment comes from Morgan Stanley's latest India Equity Strategy Playbook, which emphasizes the robust underlying fundamentals of the Indian economy. While 2025 was already a globally busy period for primary market activity in India, the pipeline remains steady with anticipated block deals and Qualified Institutional Placements (QIPs) scheduled through 2026.

Why Morgan Stanley is Optimistic About IPO Supply​

Morgan Stanley attributes its optimism primarily to improving macroeconomic conditions and strong domestic liquidity. The firm believes that the growing supply of new stock listings does not yet pose a significant threat to demand for listed equities.

The brokerage argues that India remains significantly under-owned by foreign investors, and relative valuations against other emerging markets are currently at historically low levels. This presents a clear opportunity for renewed investor interest should growth and earnings improve.

In its base-case scenario, the firm projects that retail investment demand will continue to stay ahead of supply, allowing both primary and secondary market activity to coexist without significant liquidity disruption.

Macroeconomic Drivers Fueling Equity Resilience​

The stability of India’s investment climate is further supported by favorable policy settings identified by Morgan Stanley. The brokerage notes that the country benefits from fiscal stability and moderate real interest rates.

Furthermore, Morgan Stanley projects that India's investment-to-GDP ratio could rise to 37.5% over the next five years. This strong growth trajectory, combined with an undervalued currency, continues to support equity market momentum.

The firm emphasizes that there is no expectation of a sudden surge in issuances that could overwhelm investor demand, reinforcing the notion of managed and sustainable primary market activity.

Earnings Projections and Index Targets​

Morgan Stanley projects a resumption of India’s earnings cycle, providing concrete growth expectations across key fiscal years. The brokerage forecasts broad-market earnings growth to reach 10% in FY26, 15% in FY27, and 22% in FY28.

The coming earnings season is expected to deliver positive surprises, according to the firm, citing strong high-frequency indicators. Based on these projections, Morgan Stanley forecasts that the BSE Sensex could reach a target of 89,000 by June 2027, which translates to approximately 15% upside from current levels.

Strategic Investment Focus for Indian Equities​

The brokerage maintains a constructive view on the overall trajectory of Indian equities but recommends focusing on domestic cyclicals as the primary investment play. This focused approach highlights specific sectors expected to benefit most from the anticipated economic ramp-up.

Morgan Stanley advises overweight positions in Financials, Consumer Discretionary, and Industrials. These segments are seen by the firm as having the strongest positioning to capitalize on the anticipated turnaround and growth cycle within the Indian market.