Morgan Stanley believes the Indian economy may be on the cusp of a fresh growth cycle, driven by policy support, strong domestic demand and a revival in corporate earnings, even as geopolitical risks and global uncertainties remain key challenges.

In its latest India Equity Strategy Playbook report, Morgan Stanley said, "With growth acceleration likely in the pipeline and valuations and sentiment at near extremes, Indian equities are poised for a strong year ahead."

The brokerage noted that earnings growth is turning after "a six-quarter mid-cycle slowdown" and is expected to accelerate further on the back of "reflationary policies of the RBI and the government via rate cuts, bank deregulation and liquidity infusion."

According to the report, India's macro environment has improved significantly since the post-pandemic tightening cycle. "India's hawkish macro set up post-Covid, which drove apathy towards the Indian market, has unwound," the report stated.Morgan Stanley highlighted that large-scale investments in "energy, defence, semiconductors, fertilizers and data centres" along with tax cuts and supportive fiscal policy are expected to strengthen growth momentum.The report also underscored India's growing role in the global economy. "Indeed, India was 18% of global GDP growth in 2025, a number that is likely to be higher in the coming years," it said.

However, the global brokerage cautioned that the path to achieving sustained nominal growth of 12 per cent may not be without risks. "Geopolitical tensions have just created a new challenge," the report said, adding that while India's oil intensity has declined, "it still needs to import oil."

Morgan Stanley further pointed to concerns around artificial intelligence and external demand. "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," it said.

Despite these concerns, the brokerage remains optimistic on India's medium-term prospects. "We expect India to be a big gainer in a multi-polar world, with manufacturing share in GDP likely to rise in the coming decade," the report noted.

The report added that India's biggest strength lies in demographics and consumption. "India's key leverage is its growing consumer base, with rising incomes of a relatively young population," it said.

Morgan Stanley also expects artificial intelligence-led productivity gains to benefit India over the long run, noting that "Given the low starting point of labour productivity, India is a major beneficiary of AI-led productivity gains."

Published on May 18, 2026