Stock Market Prediction 2026: Global brokerage firm Morgan Stanley believes the worst may be over for Indian equities and has maintained its “Neutral” stance on the country’s equity strategy, citing improving fundamentals and a favourable medium-term outlook.
The brokerage said Indian stocks appear well-positioned for a stronger performance over the next six months after enduring a prolonged correction earlier this year.
Echoing similar thoughts, Bernstein also reiterated bullish views, projecting a target of 26,000 for the Nifty 50 by the end of 2026 while maintaining a “Neutral” stance on Indian equities.
Against this backdrop, Morgan Stanley expects Indian equities to recover as earnings growth improves, macroeconomic conditions remain supportive, and valuations become more attractive following the recent correction.
Earnings recovery expected across sectors
On the earnings front, the brokerage believes India is entering a new profit growth cycle. While earnings growth in FY26 is likely to remain subdued, it expects a gradual recovery across multiple sectors over the coming quarters.
Morgan Stanley said the improving earnings trajectory, coupled with supportive macroeconomic conditions, could provide a stronger foundation for equity market performance in the medium term.
Capital spending cycle seen driving growth
The brokerage also expects India to enter a fresh capital expenditure (capex) upcycle, led by investments across energy, defence, semiconductors, fertilisers and data centres.
Morgan Stanley expects the investment-to-GDP ratio to rise to 37.5 per cent over the next five years, reflecting increased spending by both the public and private sectors.
A capex upcycle refers to a phase when companies significantly increase investments in long-term assets such as factories, infrastructure, technology and equipment after a period of relatively subdued spending. Such cycles typically support economic growth, job creation and corporate earnings.
Risks remain despite positive outlook
Despite its constructive stance, Morgan Stanley cautioned that several near-term risks could create volatility.
The brokerage highlighted rising geopolitical tensions in West Asia as a key external risk. It also noted that the progress and distribution of the monsoon will remain important for economic activity, rural demand and overall market sentiment.
In addition, Morgan Stanley flagged India’s lack of a direct artificial intelligence (AI) investment theme and the potential disruption AI could pose to the country’s services exports as structural challenges that investors should monitor.
Sector Strategy
From a sectoral perspective, Morgan Stanley prefers domestic cyclical sectors over defensives, reflecting its expectation of a recovery in economic activity and earnings.
| Overweight Sectors | Underweight Sectors |
| Financials | Energy |
| Consumer Discretionary | Materials |
| Industrials | Utilities |
| – | Healthcare |
IT services could emerge as a surprise Winner
While remaining selective on the sector, Morgan Stanley identified Indian IT services companies as a potential “dark horse.” The brokerage believes demand could improve as global enterprises increasingly shift their focus from building AI infrastructure to developing AI-powered applications, creating fresh opportunities for IT service providers and digital transformation companies.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money-related decisions.)
