Morgan Stanley in its recent report maintained that India is its largest overweight position.

What The Brokerage Said: Morgan Stanley has maintained an "overweight" stance on India, driven by several positive domestic factors. These include strong real and nominal GDP growth, solid earnings growth, and favorable demographic trends that support long-term equity demand.

The external payment balance has improved structurally over the recent years along with the fiscal position, the brokerage noted. This has led to a far more stable situation for domestic interest rates and currency than previously, the brokerage added. 

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Morgan Stanley highlights that India is relatively less vulnerable to major global risks, such as escalating conflicts in the Middle East and Europe or rising trade tariffs from the US, though it acknowledges some sensitivity to oil prices. However, the report points out that the Indian economy’s oil intensity has declined significantly over the past decade, reducing this risk.

The research also said that India’s fiscal policy strikes a balance between fiscal prudence and substantial infrastructure investment. This approach creates a stable foundation for predictable earnings growth while minimizing uncertainties. By focusing on disciplined fiscal management alongside growth-oriented spending, the government supports long-term economic development, further boosting investor confidence in the Indian market.

These factors gave Morgan Stanley the conviction to remain "overweight" in India even though the country has rich valuations. 

After the budget in July, Morgan Stanley kept a constructive view on Indian equities as the government balanced fiscal consolidation while preserving the capex momentum. The Indian government had kept a fiscal deficit target of  4.9% of GDP for FY25 

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