New Delhi, May 13 Indian equities are set for a strong year ahead due to acceleration in earnings growth and reflationary policies of the RBI, along with policy moves such as rate cuts, bank deregulation and liquidity infusion, a report said on Wednesday.
The report from Morgan Stanley said strong capital expenditure in energy, defence, semiconductors, fertilisers and data centres along with large tax cuts are other factors likely to drive an earnings upswing.
The investment bank forecasted a reversal after a six‑quarter slowdown as valuations and sentiment sit near extremes.
The report predicted a base case scenario of BSE Sensex touching 89,000, implying upside of about 15 per cent through June 2027.
Trade deals with the US and the EU and thawing of China relations, along with stronger domestic equity flows and an undervalued currency on a real effective basis, also support the bullish outlook.
Ridham Desai, Equity Strategist, favoured domestic cyclicals over defensives and external‑facing sectors, and went overweight on financials, consumer discretionary and industrials.
Desai gave underweight calls on Energy, materials, utilities and healthcare. "We are capitalisation-agnostic. IT services could be the dark horse as the world pivots to these companies to build AI applications," he said.
The report predicted a 300 basis‑point upswing to consumer discretionary and industrials on expected consumption growth, helped by lower interest rates, the effect of lower taxes and better overall income growth.
It predicted 200 basis‑point upswing in financials as net interest margins are troughing along with strong credit growth and benign credit costs.
"While India’s oil intensity is a lot lower than previously, it still needs to import oil. The lack of a direct AI play seems to be the most persistent challenge to the equity market, with potential AI disruption for Indian services exports aggravating matters," the report warned.
However, despite these challenges, the report predicted that India would be a big gainer in a multi-polar world, with manufacturing share in GDP likely to rise in the coming decade."
India is one of the fastest-growing places for energy infrastructure and this could fuel a boom in data centres, the report said, adding that due to the low starting point of labour productivity, India is a major beneficiary of AI-led productivity gains.
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