The Case for India’s Market Comeback

Summary

Ridham Desai, Morgan Stanley's Head of India Research and Chief India Equity Strategist, argues that Indian equities are positioned for a comeback after a historic 2025 underperformance versus emerging markets. He cites corrected valuations, policy-driven reflation, improving growth prospects, and structural macro improvements as reasons the market may rerate. He also highlights catalysts such as earnings revisions, RBI dovishness, reforms, and a potential US trade deal, while flagging global growth and geopolitical risks.

• India underperformed emerging markets in 2025 due to a midcycle growth slowdown, rich valuations, lack of an explicit AI trade, and US trade deal delays.
• Morgan Stanley sees Indian equity valuations having corrected and likely bottomed in October.
• Policymakers are deploying reflationary measures, including RBI rate cuts, CRR reduction, liquidity infusion, bank deregulation, government capex, and a large GST cut.
• Structural macro improvements include lower oil reliance, growing services exports, fiscal consolidation, and lower inflation and interest rate volatility.
• Household balance sheet shift toward equities and systematic domestic mutual fund flows support the market.
• Catalysts to watch include positive earnings revisions, further RBI dovishness, reforms such as privatization, and an India-US trade deal.
• Risks include slower global growth and shifting geopolitical dynamics.
• Desai concludes India may be on the cusp of a structural rerating and a 2026 comeback.