India market weakness a buying opportunity, earnings revival ahead: Report

Mumbai: Indian stock markets may look weak on the surface, but the current phase offers a strong buying opportunity for long-term investors, a report said on Wednesday.

The global brokerage Morgan Stanley believed that structural fundamentals of the Indian economy remain intact and earnings growth is set to improve further in 2026, even as markets struggle with near-term volatility.

The report said Indian equities are reacting more sharply to negative news than to positive developments, creating doubts among investors about possible structural problems.

However, Morgan Stanley disagrees with this view and sees the weakness as a result of market positioning and technical factors rather than any deep-rooted economic trouble.

According to the report, corporate earnings growth is already turning after a six-quarter slowdown and is likely to accelerate into 2026.

This improvement is expected to be supported by reflationary policies from the Reserve Bank of India and the government.

Rate cuts, bank deregulation, liquidity infusion, continued capital expenditure, tax relief measures and a relatively growth-supportive Budget are all contributing to a more supportive macroeconomic environment.

The brokerage noted that India’s post-Covid hawkish policy stance has now eased, creating better conditions for growth.

It also highlighted that trade agreements and improving relations with China have added to the positive backdrop.

The Indian currency is seen as undervalued, and domestic investor flows remain strong, offering stability to the market.

Despite these positives, stock performance has been disappointing. The trailing 12-month returns are among the weakest historically, and relative valuations are near previous lows.

The report noted that India’s share in global corporate profits is significantly higher than its weight in global indices, and the Sensex is trading at historically cheap levels when measured against gold. Foreign portfolio investor (FPI) positioning has also weakened in recent months.

Morgan Stanley attributed the recent underperformance partly to rising geopolitical tensions in the Middle East.

Although India’s oil intensity has reduced compared to earlier years, the country still depends on oil imports. Any uncertainty in oil supply chains or production impacts investor sentiment.

The absence of a clear artificial intelligence (AI) theme in Indian markets has also weighed on performance, as global investors chase AI-linked stocks elsewhere. Some investors are concerned that AI disruption could affect India’s services exports.