India’s equity market closed with marginal gains today on the first trading day of the week, with the Nifty ending at 26,013, up 100, and the Sensex at 84,950, up 388 points. As the week opened on a steady note, Morgan Stanley’s 2026 Asia Emerging Markets (EM) Equity Outlook offered a clear picture of how the brokerage viewed regional positioning for the coming year. Morgan Stanley kept India in its overweight category with a 75 basis point active stance. This mattered because the report stated that emerging markets could slow in 2026 if the United States dollar stays firm and financial conditions remain tight. India’s placement showed that the brokerage viewed its domestic indicators as stable enough to maintain the allocation.
Morgan Stanley stated that early improvement was visible in high-frequency indicators, although the report did not list the individual data points. The brokerage also noted that India’s exposure to the United States was lower than many larger Asian markets. This supported the view that India could absorb a period of slower global growth better than markets with higher export dependence. Overall, the report kept a cautious outlook for emerging markets as a whole, but India remained within the preferred group because its internal data looked steadier than several regional peers.
Morgan Stanley cautious on EMs but Overweight on India: 3 factors
However, the report stated that Emerging Markets may slow in 2026 as a result of the dollar’s firm trajectory and tight financial conditions. Even so, Morgan Stanley is Overweight India because three factors support the view.
First, the brokerage pointed to early improvement in high-frequency indicators. Though the report did not break down the specific data, the reference indicated that activity levels were picking up across short-cycle indicators.
Second, the brokerage showed that India had lower revenue dependence on the United States than Taiwan, Korea and Japan.The report placed India in the low-exposure and moderate-beta segment. This supported the argument that India would face less pressure if the United States growth cycle weakened.
Third, the report stated that domestic demand in India appeared steady enough to support earnings even if external conditions softened. This mattered in 2026 because, according to the report, other emerging markets were expected to rely more on semiconductor-led cycles.
Together, these points explained why Morgan Stanley kept its India allocation unchanged despite becoming more cautious on emerging markets.
Morgan Stanley on India’s valuation Vs peers
Morgan Stanley included a price-to-book versus trailing return on equity chart to compare major Asian markets. India was positioned close to the line that matched valuation with profitability. This indicated that India’s valuation levels were not shown as excessive relative to returns.
The brokerage did not describe India as undervalued. Instead, the chart suggested that India’s premium was in line with its profitability when compared with other regional markets. This alignment backed the decision to retain India’s Overweight position while several peers faced valuation strain.
Indian companies in Morgan Stanley focus lists
The report included three Indian companies in Morgan Stanley’s focus lists.
Bajaj Finance had a market capitalisation of Rs 6,25,215 crore (US$70.5 billion). It was included in both the Asia Pacific ex-Japan and the Global Emerging Markets list. Morgan Stanley sees an upside of 18.1% to the target price. The valuation was 32.2 times FY25 price-to-earnings, moving to 25.3 times FY26. The price-to-book ratio was 5.7 times, return on equity 17.8%, and dividend yield 0.6%. The report noted a 12-month return of 45.9% for the stock.
ICICI Bank had a market capitalisation of Rs 9,88,745 crore (US$111.5 billion). It remained in both the APxJ and GEM focus lists. Morgan Stanley sees an upside of 32.5% to the target price. The valuation was 19.8 times FY25 price-to-earnings, moving to 18.1 times FY26. The price-to-book ratio was 3 times, return on equity 15.1%, and dividend yield 0.8%. The report recorded a 12-month return of 2.6%.
Reliance Industries had a market capitalisation of Rs 20,39,000 crore (US$230 billion). It was listed under the Asia Thematic Focus List in the Future of Energy theme with significant materiality. It also held a moderate role in AI and Tech Diffusion and a core place in Longevity. Morgan Stanley sees an upside of 13% to the target price. The valuation was 28.5 times FY25 price-to-earnings, moving to 25.2 times FY26. The price-to-book ratio was 2.3 times, return on equity 8%, and dividend yield 0.4%.
These entries showed that Morgan Stanley focussed primarily on domestic financials and a large diversified energy company to represent India in its regional lists. This aligned with its broader view that India’s earnings cycle depended more on domestic demand than on global manufacturing or technology
Morgan Stanley on India: Lower exposure to potential United States weakness
Morgan Stanley assessed each market’s vulnerability to a weaker United States economic cycle. The report outlined a bear-case scenario where a mild recession could occur due to policy effects and delayed impacts of monetary tightening.
The brokerage stated that markets with high revenue dependence on the United States would be more exposed in such a scenario. Taiwan, Korea, and Japan were included in that group. India, with lower revenue exposure and moderate beta, was placed in a lower-risk category.
This difference supported India’s overweight status because it reduced the probability of earnings disruption if the United States economy slowed.
