India’s Stock Market Enters Longest Bull Run, But Still Has Room to Grow
India’s stock market has entered its longest bull run, surpassing the 2003-08 rally in duration, but has delivered only a third of its cumulative returns. Despite this, Morgan Stanley analysts believe the current market still has room to grow, driven by several macroeconomic factors and structural shifts.
The ongoing rally, which began in March 2020, has been supported by a declining primary deficit, democratization of investing and credit, robust consumption, improved social equity, and an energy boom. Morgan Stanley views current market valuations as reasonable, given that the earnings cycle is only midway.
India’s nominal GDP is expected to grow by 10-11% annually over the next five years, with corporate earnings likely compounding at 18-20%. Improving corporate balance sheets, rising private investments, and favourable external dynamics, such as reduced oil dependence, bolster the earnings outlook.
Morgan Stanley favours cyclicals over defensives, highlighting financials, consumer discretionary, industrials, and technology as preferred sectors. Small and mid-cap stocks, which have recently underperformed, are set to regain momentum. Emerging themes include private capital expenditure in areas like energy mobility, defense, and semiconductors, alongside traditional industries like cement and real estate.
India’s improving macroeconomic stability and structural reforms suggest its equity market still has potential for further gains, with Morgan Stanley emphasizing the importance of sectoral and thematic plays to navigate the next leg of the rally.