Soft earnings growth patch nearing its end, says Morgan Stanley

Morgan Stanley believes the soft earnings growth patch is ending, though market confidence still needs better clarity on external growth factors and GST rationalisation

The soft earnings growth patch that began in the second quarter of financial year 2025 appears to be ending, but the market is likely not yet convinced, according to a note by Morgan Stanley.

 

“Supporting a turn in growth is a dovish central bank, but confidence in it may need better clarity on the external growth environment and GST rate rationalisation,” the note said.

 

A final trade deal with the US, more capital expenditure announcements, an acceleration in loans, uniform improvement in high-frequency data, and improving trade with China could act as catalysts, the brokerage added.

 

Morgan Stanley has maintained its Sensex target of 89,000 by June 2026, implying an upside of about 9% from current levels. The Sensex last closed at 81,019.

 

 

“While FPI portfolio positioning is at its weakest since the data started in 2000, our view remains that India's low beta implies outperformance in a global bear market but underperformance in a bull market. Downside risks arise from slowing global growth and worsening geopolitics (with a rise in oil prices and/or continuing disruption in supply chains like rare earths/fertilisers),” the note said. 

 

Morgan Stanley said it is overweight on financials, consumer discretionary, and industrials, and underweight on energy, materials, utilities, and healthcare.

 

“This is likely to be a stock pickers' market, in contrast to one driven by top-down or macro factors, and thus we run an average active position of just 80bp. We are capitalisation-agnostic,” the note said.

 

The note further stated that India is likely to gain a share in global output in the coming decades, driven by strong foundational factors, including robust population growth, a functioning democracy, macroeconomic stability-influenced policy, improved infrastructure, a rising entrepreneurial class, and improving social outcomes.

 

“The implications are that India will become the world's most sought-after consumer market, it will undergo a major energy transition, credit to GDP will rise, and manufacturing could gain share in GDP,” the note concluded.