Mumbai — Morgan Stanley has reiterated a positive multi-year outlook for Indian equities even after noting that the market has recorded its weakest trailing 12-month relative performance versus emerging-market peers on record.
In a strategy note, analysts Ridham Desai and Nayant Parekh said the domestic market’s underlying fundamentals remain robust and could support strong compounding returns through the remainder of the decade. Key pillars cited include improving corporate earnings, rising investment activity and supportive macroeconomic conditions.
The brokerage identified the absence of a direct artificial intelligence-linked market theme as one of the biggest headwinds for Indian stocks at a time when global capital increasingly favours AI infrastructure, semiconductors and technology-heavy markets. “The lack of a direct AI play seems to be the most persistent challenge to the equity market,” the analysts wrote.
Morgan Stanley also flagged potential disruption from AI to India’s IT outsourcing industry, which is closely tied to global technology spending. At the same time, the note argued that India could emerge as a substantial beneficiary of AI-driven productivity gains because of its relatively low labour productivity base. The report added that Indian IT services firms could become “the dark horse” as global companies look to them to build AI applications and solutions.
Despite recent relative underperformance, several positive indicators are beginning to surface. The brokerage highlighted that 12-month rolling corporate buybacks are nearing record highs and could soon cross nearly $10 billion on a trailing basis — a factor that can underpin shareholder returns and support valuations.
Valuations, Morgan Stanley noted, have also become more reasonable. MSCI India is trading at a price-to-book multiple of 3.4 times, a level the firm says has historically corresponded with predictable 10-year forward annual returns of around 11 percent.
The report signals that while short-term volatility may persist — driven by global AI momentum and capital flows — the structural case for Indian equities is intact. Policymakers’ focus on investment, a resilient corporate earnings trajectory and active capital return policies are likely to be key catalysts for the market over the coming years.
Investors, the note implies, should weigh the near-term challenge of limited direct AI exposure against longer-term opportunities from buybacks, improving fundamentals and the evolving role of Indian IT services in the global AI ecosystem.
