New Delhi, June 2 (IANS) Indian equities are poised for a strong growth phase over the coming years despite recent underperformance against emerging markets, according to a report by Morgan Stanley, which said improving earnings growth, rising investments and supportive macroeconomic conditions continue to strengthen the long-term outlook for the domestic stock market.

In a strategy note, Morgan Stanley analysts Ridham Desai and Nayant Parekh said Indian equities have delivered their weakest trailing 12-month relative performance against emerging market peers on record.

However, the brokerage believes the market’s underlying fundamentals remain robust and could support strong compounding returns through the remainder of the decade.

The report said the absence of a direct artificial intelligence-linked market theme has remained one of the biggest challenges for Indian equities at a time when global capital flows are increasingly favouring AI infrastructure, semiconductor and technology-heavy markets.

“The lack of a direct AI play seems to be the most persistent challenge to the equity market,” the analysts wrote.

Morgan Stanley also flagged concerns over the potential disruption AI could create for India’s IT outsourcing industry, which remains closely linked to global technology spending trends.

However, the brokerage added that India could eventually emerge as a significant beneficiary of AI-driven productivity gains because of its relatively low labour productivity base.

The report said Indian IT services firms could become “the dark horse” as global companies increasingly rely on them to build AI applications and solutions.

Despite the weak relative performance of Indian equities, Morgan Stanley highlighted several positive indicators that are beginning to emerge.

The brokerage noted that 12-month rolling corporate buybacks are nearing record highs and could soon cross nearly $10 billion on a trailing basis, the report said.

Valuations have also become more reasonable. MSCI India is currently trading at a price-to-book multiple of 3.4 times, which Morgan Stanley said historically corresponds with relatively predictable 10-year forward annual returns of around 11 per cent.

–IANS

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