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Investing.com -- India’s Nifty index could touch fresh highs in the coming months, says Morgan Stanley (NYSE:MS), saying that a confluence of structural and macroeconomic factors may support a re-rating in valuations.
The brokerage said India is gaining a stronger footing in global output, driven by structural tailwinds like demographics, political stability, and improving infrastructure.
These tailwinds, combined with lower inflation volatility and a more dovish central bank, could compress real rates and support higher multiples on equity.
The Nifty 50 index has risen nearly 20% over the past year and is hovering near record levels.
There are further upside too like falling oil intensity, steady export growth especially in services and the prospect of a primary fiscal surplus within three years.
“High growth with low volatility and falling interest rates and low beta = higher P/E,” said analyst, adding that household portfolios continue to tilt towards equities, providing a steady bid for stocks.
But brokerage cautions that near-term gains may depend on market confidence in the earnings cycle.
A soft patch that began in the second quarter of fiscal 2025 may be ending but the market remains unconvinced.
Potential catalysts include a trade deal with the US, greater clarity on GST rate changes, and a pickup in private capex and credit growth.
Foreign portfolio investor positioning remains at its weakest level in over two decades, suggesting room for inflows, though MS flagged global growth and geopolitics, mostly higher oil prices, as downside risks.
Morgan Stanley recommends overweight positions in domestic cyclicals such as financials, consumer discretionary and industrials, while remaining underweight energy, utilities and healthcare.
It also noted that the current environment is likely to favour stock selection over macro-driven moves.