Morgan Stanley sees opportunity in market dip despite growth, valuation concerns

markets

Morgan Stanley, in its recent note, stated that it views the recent correction in local equities as a buying opportunity despite persistent market concerns over India's growth sustainability, retail investor resilience, and high stock valuations. While acknowledging the difficulty of timing the bottom, the brokerage remains optimistic about a recovery ahead.

The brokerage said a slowdown in growth has unnerved investors, but it believes a recovery is on the horizon. The recent price decline has occurred on falling trading volumes, suggesting a lack of buyers rather than aggressive selling. Private financials appear to offer the best risk-reward balance in the current environment.

"Our proprietary sentiment indicator has entered buy territory for the first time since mid-2022. While it could dip further, as seen in March 2020, we do not expect fundamentals to deteriorate significantly from here", Morgan said

Indian markets saw huge corrections in January so far with benchmark Sensex and Nifty declined over 3 percent each while broader markets BSE MidCap and SmallCap lost over 7 percent each.

The brokerage also said government expenditure is accelerating, and fiscal consolidation in FY26 is expected to be milder than in FY25. Meanwhile, the RBI is prioritising liquidity and reducing regulatory burdens, addressing key factors behind the recent slowdown.

Retail investors have also shown resilience, reinforcing the case for a market rebound. However, risks remain, including potential policy missteps, a deepening US market correction, and slower global growth. Despite these uncertainties, improving fundamentals set the stage for a broad market recovery in the near term, it said.