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Morgan Stanley (NYSE) analysts predict a continued rally in Indian stocks in the coming years, especially after the 2024 general election results indicated a third term for the BJP-led NDA.
Despite securing a smaller majority, the NDA’s retention of power provides a predictable policy outlook. Morgan Stanley highlighted improvements in India’s macro stability and economic conditions. The brokerage forecasts a 12% to 15% annual growth rate for the BSE Sensex 30 over the next five years.
“The election outcome is likely to usher in more structural reforms, reinforcing our forecast of 20% annual earnings growth over the next five years. We believe this is set to be India’s longest and strongest bull market ever,” MS analysts noted.
Earlier this week, the Nifty 50 and Sensex dropped from record highs following the general election results, which showed the NDA winning a smaller majority than expected while the Congress-led INDI alliance gained ground. This development raised concerns about potential opposition to the NDA’s policy changes.
Despite this, the NDA is expected to form a government for a third consecutive term, with Prime Minister Narendra Modi continuing in his role. Indian stocks rebounded over the past two days, nearing the peaks seen earlier in the week.
Investors have largely welcomed Modi’s business-friendly policies over the past decade, which have propelled India’s economic growth ahead of global peers through infrastructure investments and improved manufacturing capabilities. Morgan Stanley anticipates this trend will continue over the next five years, with additional economic reforms by the BJP boosting India’s economic stability.
The brokerage is overweight on financials, technology, consumer discretionary, and industrials sectors, while underweight on others. They also favor cyclicals over defensives and large caps over small caps.
However, Morgan Stanley identified risks for Indian stocks, including bureaucratic inefficiencies, infrastructure challenges, the potential impact of artificial intelligence on the technology sector, climate change, and sluggish reforms.
