India: A report on Wednesday said that the Indian stock market may appear weak on the surface, but the current period is a good buying opportunity for long-term investors. Global brokerage Morgan Stanley believes the structural fundamentals of the Indian economy remain intact and earnings are expected to improve further in 2026, even as markets grapple with near-term volatility. The report said Indian equities are reacting more quickly to negative news than positive developments, raising suspicion among investors about possible structural problems.
However, Morgan Stanley disagrees and considers this weakness to be the result of market positioning and technical reasons rather than any deep economic problem. According to the report, corporate earnings are already improving after six quarters of recession and are likely to accelerate further in 2026. This recovery is expected to be supported by the reflationary policy of the Reserve Bank of India and the government. Rate cuts, bank deregulation, liquidity infusion, sustained capital spending, tax relief measures and a growth-supportive Budget are all creating a more supportive macroeconomic environment. The brokerage said that after Covid, India’s strict policy stance has now softened, which is creating better conditions for growth.
It also said that trade agreements and improving relations with China have further enhanced the positive environment. The Indian currency is seen undervalued, and domestic investor flows remain strong, providing stability to the market. Despite these positives, the stock’s performance has been disappointing. Returns over the last 12 months are the weakest historically, and relative valuations are near previous lows.
The report notes that India’s share in global corporate profits is much higher than its weight in global indexes, and the Sensex is trading at historically cheap levels compared to gold. The position of the Foreign Portfolio Investor (FPI) has also weakened in recent months. Morgan Stanley attributed the recent poor performance in part to rising geopolitical tensions in the Middle East.
Although oil consumption in India has decreased compared to previous years, the country is still dependent on oil imports. Any uncertainty in the oil supply chain or production impacts investor sentiment. The lack of a clear theme of Artificial Intelligence (AI) in the Indian market has also impacted performance, as global investors look for AI-related stocks elsewhere. Some investors are worried that disruptions in AI could impact India’s service exports.
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