Morgan Stanley has reset its India playbook for 2026, laying out its big bets, preferred sectors, key stock picks and the risks that could test its view. The brokerage expects next year to be shaped mainly by broad macro shifts rather than narrow stock selection. Backed by policy support, improving liquidity, GST cuts and steady capex, it believes domestic demand will strengthen and lift the sectors most closely tied to consumption, investment and credit.
Morgan Stanley’s big bets in India
Morgan Stanley expects domestic demand to gather pace in 2026 as policy support, liquidity, GST cuts worth nearly Rs 1.5 lakh crore, and capex spending feed into household budgets and business activity. It said the market ended 2025 with weak relative performance against emerging markets, leaving room for a catch-up phase if earnings improve. The firm believes domestic sectors connected to demand and investment will take the lead as the cycle progresses.
The brokerage projects nominal GDP growth of 10-11% on average over the next five years, with Sensex earnings rising 17% annually through FY28. It expects domestic flows to stay firm given stable systematic investments and the rising share of retirement schemes investing in equities. The equity supply pipeline remains manageable at about 1% of GDP, far below earlier peaks above 3.5%.
Morgan Stanley on India: Key sectors in focus
Morgan Stanley has raised allocations to consumer discretionary, industrials and financials, arguing that these sectors stand to gain from falling borrowing costs, better household sentiment and improving credit conditions.
Consumer discretionary
It expects spending to rise as GST cuts relieve pressure on essential outlays. Autos, jewellery, apparel and large-format retail are set to benefit as jobs stabilise and credit flows widen. Companies with strong brand recall and efficient distribution should gain faster when demand revives.
Industrials
The brokerage sees a favourable setup driven by front-loaded public capex and improving private capex. Utilisation levels have risen, order books look healthier and margins are more stable, supporting what it describes as a multi-year investment phase.
Financials
Credit growth is expected to remain firm across retail, SME and corporate segments. Banks with strong deposit franchises and NBFCs with low-cost liabilities should benefit as borrowing costs ease and lending demand rises.
Morgan Stanley on India: Key stocks in focus
Morgan Stanley’s 2026 focus list includes key Indian stocks including Maruti Suzuki, Trent, Titan, Varun Beverages, Reliance Industries, Bajaj Finance, ICICI Bank, Larsen & Toubro, UltraTech Cement and Coforge.
Maruti Suzuki is seen as a direct play on a stronger passenger vehicle cycle. Trent and Titan are tied to rising urban consumption. Varun Beverages offers exposure to growing demand in off-trade channels. Reliance Industries provides leverage to retail, digital services and consumer-facing businesses.
In financials, Bajaj Finance and ICICI Bank are expected to benefit from steady credit demand and stable asset quality. Larsen & Toubro and UltraTech Cement stand to gain from capex-led activity. Coforge adds exposure to technology services tied to digital projects and domestic tech spending.
Morgan Stanley on India: Underweight 4 sectors
Morgan Stanley has cut exposure to energy, materials, healthcare and utilities. It said these sectors do not align closely with the domestic demand story it expects next year.
Energy and materials will continue to respond primarily to global commodity cycles and may not keep pace with earnings recovery in domestic cyclicals. Healthcare and utilities, which typically outperform in defensive phases, are expected to lag in a year driven by demand and investment.
Technology, while not formally underweight, may see uneven trends due to global uncertainties and concerns around India’s place in the global AI cycle, which have affected valuations even though earnings have remained firm.
Morgan Stanley on India: Risk checklist
Morgan Stanley flagged global growth as the biggest risk to its stance. A sharp slowdown would hurt export-driven names and soften earnings. Oil above $100 would pressure the current account and could force tighter monetary policy. A US recession would weigh on technology and business services exports.
Domestic risks include a sudden jump in equity supply, weaker retail flows, stress in state finances and climate disruptions that may affect rural demand. State elections in mid-2026 may bring volatility, though the firm does not expect them to change the broader cycle. It also said an India-US trade deal could reduce uncertainty for export-linked sectors, while events like the AI Impact Summit 2026 could influence sentiment.
