Morgan Stanley Stays Bullish on Indian Equities for Q3 FY26

Global brokerage firm Morgan Stanley has expressed a strong positive outlook on Indian equities heading into the third quarter of FY26, projecting that the market has a greater probability of advancing than declining. The firm attributes this optimism to a confluence of supportive macroeconomic indicators and improving corporate fundamentals.

According to Morgan Stanley, a combination of rising government expenditure, signals of monetary easing from the Reserve Bank of India (RBI), and robust corporate earnings is likely to fuel market momentum beginning in July.

The brokerage notes that India is experiencing a sustained uptick in public sector spending, while inflationary pressures appear to be moderating. Together, these trends create an environment conducive to equity market growth. Furthermore, a dovish policy outlook from the RBI, possibly culminating in a 25-basis point rate cut later this fiscal, could accelerate credit growth and stimulate private sector investment.

Morgan Stanley also anticipates an upbeat earnings season, citing several catalysts that may lead to positive surprises. These include a favourable base effect from the previous year, improved operational efficiencies across industries, and resilient consumer demand. Such dynamics, the firm believes, could push several sectors to outperform market expectations.

While the domestic outlook remains promising, Morgan Stanley cautions that global factors continue to hold significant sway. Volatility driven by geopolitical developments, international trade tensions, and recession fears in advanced economies could spill over into Indian markets. Although India is traditionally considered a low-beta market—less volatile relative to global movements—a broad-based sell-off across global equities could still impact domestic sentiment.

Additionally, the brokerage flagged that a sudden drop in crude oil prices might not necessarily be a net positive. Instead, it could signal deeper concerns about the global macroeconomic climate.

Despite these headwinds, Morgan Stanley underscores the resilience of Indian retail investors and the strategic long-term positioning by foreign institutions as stabilizing forces. India’s equity market, it says, benefits from a “scarcity premium” among emerging markets, supported by an ongoing reform agenda, including GST simplification and expansive infrastructure investments.

While acknowledging that valuations remain on the higher side compared to historical norms, the firm argues that strong earnings potential makes current prices justifiable. It added that India’s solid growth prospects and consistent policy environment make it a standout among global emerging markets.

ALSO READ: Indian Economy Resilient Despite Global Headwinds: Finance Ministry