Weakness in Indian Stock Market Offers Buying Opportunity; Earnings Likely to Improve: Report

Mumbai

Amid recent softness in the Indian stock market, a new report suggests that the current phase presents an attractive opportunity for long-term investors.

Global brokerage firm Morgan Stanley believes that India’s structural economic fundamentals remain intact and that earnings growth is expected to improve further in 2026, even as markets grapple with near-term volatility.

Market Reacting Sharply to Negative News

According to the report, Indian equities are currently reacting more sharply to negative developments than to positive ones. This trend has raised concerns among investors about potential structural weaknesses in the economy.

However, Morgan Stanley disagrees with this cautious interpretation. The brokerage views the recent weakness as largely driven by market positioning and technical factors rather than any deep-rooted economic problems.

The report noted that after a six-quarter slowdown, corporate earnings growth is already showing signs of recovery and is likely to accelerate in 2026.

Supportive Policy Environment

The anticipated improvement in earnings is expected to be supported by reflationary measures undertaken by the Reserve Bank of India and the government.

Key supportive factors include rate cuts, easing bank regulations, improved liquidity flows, continued capital expenditure, tax relief measures, and a relatively growth-oriented budget. Together, these measures are contributing to a more favorable macroeconomic environment.

The brokerage also highlighted that India’s post-Covid tight policy stance has eased, creating better conditions for economic expansion.

Valuations Near Historical Lows

Despite these positives, stock performance over the past 12 months has been among the weakest historically. Relative valuations are hovering near previous lows.

The report further stated that India’s share in global corporate profits is significantly higher than its weight in global indices. Additionally, the BSE Sensex is trading at historically inexpensive levels when compared to gold prices.

Foreign Portfolio Investor (FPI) positioning has also weakened in recent months, adding to short-term pressure.

Overall, the brokerage maintains that the present market correction should be viewed as a buying opportunity for investors with a long-term horizon.

 

 

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