Earnings Outlook

Morgan Stanley predicts accelerating earnings growth, ending a six-quarter mid-cycle slowdown. The firm forecasts broad market earnings to rise 10% in FY27 and 22% by FY29. This rebound will be driven by a revival in private capital expenditure and strong domestic consumption, supported by easier monetary policy and lower interest rates.

Sector Preferences

Financials are a key sector overweight. Banks and lenders are expected to enter a strong earnings cycle, boosted by improving net interest margins (NIMs), robust credit growth, and favorable credit costs. Industrials are favored as private capex picks up, especially in energy infrastructure and data centers, which are seen as new growth drivers. Consumer discretionary stocks are also highlighted, anticipating strong consumption growth from lower borrowing costs, tax relief, and rising incomes.

Top Stock Picks

Morgan Stanley's top stock picks include Adani Power, Larsen & Toubro, ICICI Bank, Bajaj Finance, and Maruti Suzuki India. Adani Power is favored for its role in energy infrastructure expansion. Larsen & Toubro is set to gain from the private capex revival. ICICI Bank and Bajaj Finance are key to the firm's positive financial sector view. Maruti Suzuki India is included in the consumption-focused selection. The report also noted strong domestic equity inflows while foreign investor positioning is at multi-year lows, indicating an attractive entry point.

Outlook and Risks

The base case projection from Morgan Stanley sees the Sensex reaching 89,000 by June 2027, representing a 15% potential upside. Primary external risks identified are geopolitical tensions and higher crude oil prices. Despite these, the brokerage believes India is well-positioned to capture global growth share.