Morgan Stanley sees Indian stocks beating peers on policy push

Core Viewpoint - Indian equities are expected to reverse their historical underperformance against emerging market peers in the coming year, driven by government policy actions and a projected 13% upside for the BSE Sensex through the end of next year [1]. Group 1: Market Performance - India's equity market, valued at $5.4 trillion, has lagged behind due to a lower representation of technology stocks compared to peers, with local equities underperforming a broad emerging-market measure by the widest margin since 1993 [2]. - Despite its relatively weaker performance, the Sensex has increased by over 8% this year and is trading close to all-time high levels [4]. Group 2: Earnings Growth Projections - A positive growth surprise is anticipated, with a projected 17% compound annual growth rate for Sensex earnings through the fiscal year ending in March 2028, supported by reflation efforts from the central bank and government [3]. Group 3: Sector Preferences - The strategists favor domestic cyclicals over defensives and external-facing sectors, maintaining an overweight position in financials, consumer discretionary, and industrials, while underweighting energy, materials, utilities, and healthcare [5].