New Delhi [India], January 13 : India's internet stocks went through a consolidation in the year that passed by - 2025, and investors now await signs of an earnings downgrade cycle to complete before turning more constructive on those stocks/sector, according to Morgan Stanley Research.
The report stated that the sector faced slower funding, earnings pressure, and a clear shift in investor sentiment.
The report described 2025 as a year of consolidation for India's internet stocks.
Startup funding declined compared to the previous year. Total funding in 2025 stood at USD 7.6 billion, marking a 9 per cent year-on-year fall, the Morgan Stanley report noted.
While the first half of the year showed some recovery, the momentum weakened later. The report noted that the cumulative funding YTD saw a year-on-year decline from July 2025 onwards.
This reflected investor caution amid global uncertainty and tighter capital conditions.
From India's perspective, this slowdown brought a necessary reset.
Companies were compelled to prioritise profitability, cost control, and sustainable growth over rapid expansion. Easy capital was no longer available, and business models were tested more rigorously; in a way, this has asserted itself.
Despite the slowdown, funding activity continued. Digital commerce, financial technology, and enterprise-focused technology remained the most active sectors.
Among these, financial technology was the only major category to record growth in funding during the year. In digital commerce, funding shifted away from large platforms toward smaller consumer brands, driven by "many early to mid-stage deals" rather than large headline transactions.
Public markets also reflected this consolidation phase. Internet-focused stocks corrected early in the year, recovered later, but ended 2025 with limited overall returns.
According to Morgan Stanley, several companies faced "continued earnings downgrades" due to intense competition, higher marketing expenses, and regulatory changes.
User behaviour trends also indicated consolidation. In payments and financial apps, user engagement improved for select platforms, while in quick commerce, market share shifted toward fewer players, it said. This indicated a maturing market in which scale alone is no longer sufficient, and efficiency is paramount.
Looking ahead, Morgan Stanley noted that investors are waiting for signs that the earnings downgrade cycle has completed before becoming more constructive toward stocks/sectors. This suggests that confidence could return once earnings stabilise and visibility improves.
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