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June 2, 2025 12:47 PM GMT

India Equity Strategy Playbook | Asia Pacific

Foundation

Morgan Stanley India Company Private Limited+

Ridham Desai
Equity Strategist

Equities Appear Inexpensive [email protected]

Sheela Rathi
+91 22 6118-2222

Equity Analyst
[email protected] +91 22 6118-2224

Global uncertainty is providing investors with an opportunity to Nayant Parekh

Equity Strategist
buy India's long-term story. It will require patience, given the [email protected] +91 22 6118-1008

potential for bad news from outside India, but we believe

rewards will come in time.
• Market wants to go up, not down: Since September 2024, the market has
digested an unprecedented amount of bad news – excessive valuations in
SMIDs and a sharp correction in the broad market pointing to a slowdown in
macro growth and earnings, US tariff-related volatility and a major terrorist
attack along with India’s response with the large cap indexes about 5% from
all-time highs and almost negligible changes in implied volumes. However,
the net price action hides how much stocks have de-rated relative to long Related research
bonds, gold and India’s share in global GDP. Mid-Year Outlook: Defensive Market with
• Fundamentals remain strong: 1) Strong macro stability with improving Upside
terms of trade, declining primary deficit and low inflation volatility; 2) mid- QE Mar-25 Earnings So Far
to high-teens earnings growth annually over the next three to five years, led "DREAM" Run: New High for SIPs
by an emerging private capex cycle, releveraging of corporate balance sheets 1Q25 Ownership Trends: Domestic Institutions
and a structural rise in discretionary consumption; 3) a reliable source of Bid Exclusively
domestic risk capital via retail flows, which remained largely unaffected The New India: Why This Is India's Decade
during the recent sell off, underpinning its structural nature; 4) ranged oil The US$10 Trillion Positive Wealth Shock
prices; 5) two positives from the recent geopolitical event – i) India has a
new doctrine on terror that makes future terror attacks an act of war, a
strong deterrent to future terror strikes and making it easy for future
governments to act decisively against terror, unlike the past, and ii) upside
surprise in military performance underscoring strong progress made in
strategy, air combat, navigation and precision attacks; 6) foreign portfolios
positioning is the weakest since we have had the data in 2000, and there are
early signs that their view on India is shifting.
• Risks and catalysts: Key India-specific catalysts include continuing more
dovish actions from the RBI, stimulus through GST rate cuts, a trade deal
with the US and incoming growth data. The most crucial cue will likely be
global, including US policy and global growth rates. China's deflation
impulses and geopolitics are other risks to monitor. Our view remains given
India’s low beta it likely outperforms a global bear market but Morgan Stanley does and seeks to do business with
companies covered in Morgan Stanley Research. As a result,
underperforms a bull market. investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of Morgan Stanley
• Portfolio strategy: Domestic Cyclicals > Defensives and External facing
Research. Investors should consider Morgan Stanley
sectors, OW Financials, Consumer Discretionary and Industrials, UW Energy, Research as only a single factor in making their investment
decision.
Materials, Utilities and Healthcare. Given the global uncertainties, our
For analyst certification and other important disclosures,
average active position is just 80bp. This is likely to be a stock pickers' refer to the Disclosure Section, located at the end of this
report.
market, in contrast to one driven by top-down or macro factors since the
+= Analysts employed by non-U.S. affiliates are not registered
Covid pandemic. We are capitalization agnostic. with FINRA, may not be associated persons of the member
and may not be subject to FINRA restrictions on
communications with a subject company, public appearances
and trading securities held by a research analyst account.
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Macro Stability and Policy

Declining Volatility in Inflation and Lower Headline Inflation Earnings Still playing Catch up with Trend
CPI (YoY) Volatility in CPI (3Y Std Dev) - RS 10000
15% 6%
on a log scale
13% 5% Nominal GDP
11%
4% Earnings Indexed to 100
9% 1000
3%
7%
2%
5%
3% 1%
100
1% 0%

FY2014
FY1994
FY1996
FY1998
FY2000
FY2002
FY2004
FY2006
FY2008
FY2010
FY2012

FY2016
FY2018
FY2020
FY2022
FY2024E
FY2026E
1991

2015
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013

2017
2019
2021
2023
2025
India’s Policy Pivot Is a Key Support to Share Prices
India's Beta Relative to World Equities Is Low and Falling
0 100% 2.0 1-year rolling beta MSCI India vs. MSCI AC World
India Economic Policy Uncertainty Index relative to World (3MMA) (pushed
forward 3M) on reverse scale -LS 80%
MSCI India YoY perf. Relative to ACWI 1.5
100 60%
40% 1.0
200
20%
0.5
300 0%
-20% 0.0
400 -40%
2004

2016
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

2017
2018
2019
2020
2021
2022
2023
2024
2025

-0.5

2002

2006

2011

2015

2024
1997
1998
1999
2000
2001

2003
2004
2005

2007
2008
2009
2010

2012
2013
2014

2016
2017
2018
2019
2020
2021
2022
2023

2025
Source: Economic Policy Uncertainty Index, RBI, RIMES, MSCI, Morgan Stanley Research

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Valuations
Equities De-rate versus Long Bonds… …And look particularly Attractive
2.0 Equity multiple (using 24M fwd PE) over bond multiple -80% 10Y Yield Spread (US - India)
(using 10-year bond yields) Equity multiple over bond multiple - India rel to US : RHS
1.8 -60% 0% 5
2Y CAGR in MSCI India on reverse scale - RS
1.6 -40%
1.4 -2% 4
-20%
1.2
0% -4% 3
1.0
20%
0.8 -6% 2
0.6 40%
0.4 60% -8% 1
0.2 80%
-10% 0
1999

2001

2021
1995

1997

2003

2005

2007

2009

2011

2013

2015

2017

2019

2023

2025

2006

2014
1994

1996

1998

2000

2002

2004

2008

2010

2012

2016

2018

2020

2022

2024
Share in Gain in World Market Cap < Gain in Global GDP Sensex in Gold Ounces: A Significant Fall
4.5% Share of India (in World Market Cap) Share of India (in World GDP) - RS Sensex in gold ounces (log scale)
4.0%
1,094
3.5%
3.0%
2.5%
2.0% 405
1.5%
1.0%
0.5%
2003

2008

2013
2004
2005
2006
2007

2009
2010
2011
2012

2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024E
2025E
2026E
2027E

150

1995
1991

1993

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025
Source: RIMES,MSCI, Bloomberg, CEIC, Morgan Stanley Research (E) estimates.

Morgan Stanley Research 3

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Snapshot of What Our Key Indicators Are Saying

Class Sub Class Indicator Type Return outlook
Macro Growth Nominal IIP growth Lagging Positive
Macro Growth GDP growth minus 10 year yield Leading Positive
Macro Policy Policy uncertainty index Coincident Positive
Macro Policy Nominal GDP growth minus Repo rate Coincident Positive
Macro Macro stability Repo rate gap with US Fed funds rate Leading Positive
Macro Macro stability Crude oil relative to copper Coincident Postive
Macro Rates Yield curve Leading Positive
Macro Rates Change in 91-year yields Leading Positive
Cross asset Bonds Short bonds relative to equity valuations Leading Neutral
Cross asset Bonds Long bonds relative to equity valuations Leading Neutral
Cross asset Currency REER Leading Neutral
Cross asset Currency DXY Coincident Neutral
Liquidity Global UST Yield minus earnings yield Leading Negative
Liquidity Domestic Gap in index and EPS change Leading Positive
Corporate Fundamentals Earnings Earnings growth leading indicator Leading Neutral
Corporate Fundamentals Earnings Earning growth implied by shares Leading Positive
Valuations PB Leading Neutral
Valuations Market cap to M2 Leading Negative
Valuations Leading return indicator Leading Neutral
Valuations Composite valuation indicator Leading Positive
Sentiment Flows Aggregate institutional flows Leading Neutral
Sentiment Proprietary sentiment indicator Leading Positive

Source: Morgan Stanley Research estimates.

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Macro Growth
IIP Growth GDP Growth Minus 10-year Yield

120% 30% BSE Sensex YoY Returns

3MMA Nominal IIP growth - RS 100% Gap between Real GDP growth and 10Y Bond Yield - RS 8.0%
100% 25%
80% 6.0%
80% 20%
60% 4.0%
60%
15%
40% 2.0%
40%
10% 20% 0.0%
20%
5% 0% -2.0%
0%
0% -20% -4.0%
-20%
-40% -5% -40% -6.0%

-60% -10% -60% -8.0%

YoY Sensex Returns (pushed fwd 6 months)
-80% -15% -80% -10.0%

2006

2016
2000
2002
2004

2008
2010
2012
2014

2018
2020
2022
2024
2008
2000
2002
2004
2006

2010
2012
2014
2016
2018
2020
2022
2024

The market anticipates nominal industrial growth and is Real GDP growth took a knock in 2Q. Aside that, the gap
currently pricing in weaker growth than our forecasts. between real GDP growth and the 10-year bond yield
suggests future stock returns may are looking fine.

Source: BSE, Bloomberg, CEIC, Morgan Stanley Research estimates.

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Policy
Economic Policy Uncertainty Index Nominal GDP Growth minus Policy Rate

India's economic policy uncertainty index - LS (on Reverse Scale) 20.0% 150%
0 40%

50 30% 15.0%
100%

20% 10.0%
100
50%
10%
5.0%
150
0% 0%
0.0%
200
-10%
-50%
-5.0% Nominal GDP growth minus Repo rate
250 -20%
MSCI India vs. EM: 12M
relative performance - RS Sensex 12M Returns (RS)
-10.0% -100%
300 -30%

2003

2012
2013

2020
2021
2022
2002

2004
2005
2006
2007
2008
2009
2010
2011

2014
2015
2016
2017
2018
2019

2023
2024
2025
2015

2019

2023
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014

2016
2017
2018

2020
2021
2022

2024
2025

When nominal growth is rising relative to repo rates, stocks

A coincident indicator, the policy certainty index had fallen
tend to do well. This coincident indicator has recovered post
from its pre-election levels. We expect a strong policy
the weak 2Q GDP numbers. Overall, we think growth is
backdrop (and much better relative policy stability vs. the
rising relative to policy rates and augurs well for stocks.
world) and favor India’s outperformance.

Source: Economic Policy Uncertainty Index, BSE, RIMES, MSCI, CEIC, Morgan Stanley Research.

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Macro Stability
India’s Real Policy Rate Gap with the US Terms of Trade: Crude Oil

7% Real Policy Rate Differential (India less US) 50% Brent Rel to Copper YoY change
80% MSCI India Rel to EM YoY Returns (Right reverse scale)
-30%
40%
5% 60% -20%
30%
40%
3% -10%
20%
20%
1% 10% 0%
0%
0% 10%
-1% -20%
-10% 20%
India Rel to EM (YoY) - RS -40%
-3%
-20%
-60% 30%
-5% -30%
-80% 40%
May-21
May-13
May-14
May-15
May-16
May-17
May-18
May-19
May-20

May-22
May-23
May-24
May-25
May-26

2010
2002

2004

2006

2008

2012

2014

2016

2018

2020

2022

2024
India’s real policy rate relative to the US is turning up in the Oil is the most important ingredient in terms of trade and,
coming months and could support India’s relative thus, macro stability. India’s relative performance reacts
outperformance to EM in the coming months. to supply-led changes in oil prices (oil prices relative to
copper). This coincident indicator has turned down, which
is positive for India, albeit the historical relationship has
broken.
Source: RBI, RIMES, MSCI, Bloomberg, Morgan Stanley Research (E) estimates.

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Interest Rates
Yield Curve Short Rates

5.0% Yield Curve pushed fwd 120% 6% YoY Change in 91D Yield (LS) 120%
2M
4.0% 100% YoY Change in MSCI India pushed back 9 months 100%
Sensex 12M trailing 4%
Returns - RS
80% 80%
3.0%
60% 2% 60%
2.0% 40% 40%
0%
1.0% 20% 20%
0% -2%
0.0% 0%
-20%
-1.0% -4% -20%
-40%
-40%
-2.0% -60% -6%
-60%
-3.0% -80%
-8% -80%
2018
2019
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017

2020
2021
2022
2023
2024
2025

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024
The yield curve leads stock returns by about two months. The change in short-term interest rates leads stock
The curve remains flattish and, at the margin, is not returns by about nine months and is currently pointing to
providing positive cues for stock returns. better equity returns.

Source: RIMES, MSCI, Bloomberg, Morgan Stanley Research.

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Bond Market
Short Rates Relative to Equity Valuations Long Rates Relative to Equity Valuations
vs. Market Performance vs. Market Performance

3 Year Fwd. Compounded Annual Return for MSCI India-LS 2.0 Equity multiple (using 24M fwd PE) over bond -80%
60% Modified Earnings Yield Gap - RS 8% multiple (using 10-year bond yields)
1.8 -60%
50% 6% 2Y CAGR in MSCI India on reverse scale - RS
40% 1.6 -40%
4%
30% 1.4
2% -20%
20% 1.2
0% 0%
10% 1.0
-2% 20%
0% 0.8
-4% 0.6 40%
-10%
-20% -6% 0.4 60%

-30% -8% 0.2 80%

2009
1995
1997
1999
2001
2003
2005
2007

2011
2013
2015
2017
2019
2021
2023
2025

2005
1995
1997
1999
2001
2003

2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
Long-term interest rates, as expressed by the 10-year
Short-term interest rates relative to equity valuations lead
yield relative to equity valuations, have strong predictive
equity returns. The indicator has finally turned up after
power on equity returns. More recently, the indicator has
several declining months although it is still pointing to
turned constructive for stock returns
moderate equity returns.
Source: RIMES, MSCI, Bloomberg, Morgan Stanley Research.

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Currency
REER vs. BSE Sensex If DXY Goes Lower, Indian Stocks Should do Well

-60% RBI REER on CPI, (F2000 base, 40 Countries)

110 350 70
MSCI India Rel to MSCI EM
-40%
300 80
105
-20%
250 90
0% 100
20% 200 100

40% 95
150 110
60%
90 Index
100 120
80% BSE Sensex 12M Fwd Returns (LS -
On reversed scale) DXY (Right scale - reversed)
100% 85 50 130

2004

2016
1994
1996
1998
2000
2002

2006
2008
2010
2012
2014

2018
2020
2022
2024
2005

2008

2019

2021

2024
2004

2006
2007

2009
2010
2011
2012
2013
2014
2015
2016
2017
2018

2020

2022
2023

The real effective exchange rate (REER) has an inverted India has outperformed EM when the DXY depreciated (a
relationship with stocks. The REER is off highs but its coincident indicator). A rising DXY makes growth and macro
historical relationship with equities is breaking down. stability vulnerable to policy errors and causes flows and forex
reserves to fall, as we have seen recently.

Source: RBI, CEIC, RIMES, MSCI, Bloomberg, Morgan Stanley Research.

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Liquidity
Global Liquidity Proxy: UST Yield Minus India's Earnings Yield Liquidity for Large Caps vs. MSCI India

120% Sensex YoY -8% 40% Trailing 3 year CAGR -80%

(Pushed back 12M) 12M forward Sensex Return (RS - reversed)
100% -60%
-6% 30%
80% -40%
60% 20% -20%
-4%
40% 0%
10%
20% -2% 20%
0%
0% 40%
0% 60%
-20% -10%
-40% Index change minus EPS 80%
US 10Y Yield- MSCI India
2% -20% growth for MSCI India
-60% earnings yield (RS)
100%

-80% 4% -30% 120%

2001

2011

2023
1999

2003
2005
2007
2009

2013
2015
2017
2019
2021

2025
1998

2006

2014

2022
1996

2000
2002
2004

2008
2010
2012

2016
2018
2020

2024

Our global liquidity proxy, which measures liquidity as the gap Liquidity, in our view, is the relative force between the bid
between the 10-year UST and India’s earnings yield, leads and the offer. This can be measured using the gap between
stock returns. The indicator remains depressed and not the index and EPS change – we find this metric leads market
helpful for the outlook on stocks as has been the case for performance and is pointing to neutral conditions for stock
many months. returns.
Source: RIMES, MSCI, Bloomberg, Morgan Stanley Research.

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Corporate Fundamentals
Earnings Growth Leading Indicator Earnings Growth Implied by Stocks

35% 100%
2-year fwd BSE Sensex actual 12M fwd Earnings growth
earnings growth
30% 80% implied by EY gap model
Predicted 2-year fwd BSE
25% 60% Trailing Earnings growth
Sensex actual earnings growth
pushed back one year
20% 40%

15% 20%

10% 0%

5% -20%

0% -40%
R-squared = 74% -60%
-5%

-10% -80%

2005

2011
2012

2025
2006
2007
2008
2009
2010

2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2004

2022
2002

2006

2008

2010

2012

2014

2016

2018

2020

2024

Our proprietary earnings growth indicator, built with various Stock returns lead earnings growth and are suggesting around
market and macro inputs, leads earnings growth and is almost single-digit EPS growth in the coming 12 months,
suggesting modest earnings. significantly lower than our estimates.

Source: Bloomberg, CEIC, CMIE, RIMES, MSCI, Morgan Stanley Research.

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Valuations
MSCI India P/B vs. 10-year Returns Market Cap to M2

350 Market Cap to M2 -80%

25% Annual 10-year fwd
Current P/B of 3.9 implies a
MSCI India returns 10-year annual return of 9.4% -60%
300 12M Fwd Sensex Returns (RS - on
20%
reverse scale) -40%
250 -20%

15% 0%
200
20%
150
10% 40%

100 60%
R² = 0.5706
5% 80%
MSCI India Trailing P/B
50
100%
y = -0.033x + 0.223
0% 0 120%

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025
1 2 3 4 5 6 7

The absolute P/B multiple has strong predictive power at Market cap to M2 leads equity returns by 12 months and
extremes. It is now lower than median territory. Prospective has been implying that lower returns for several months.
long-term returns have improved from recent months but
remain modest.
Source: CEIC, RBI, Bloomberg, BSE, RIMES, MSCI, Morgan Stanley Research.

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Valuations
Leading Return Indicator Composite Valuation Indicator

60% 150%
3-year fwd Sensex return 12M Fwd. Performance
50% 125%
Predicted 3-year Fwd return Predicted 12M Fwd. Performance
40% 100%

30% 75%

20% 50%

25% 33%
10%
0%
0%
-25%
-10%
-50%
-20%
-75%
-30%

2006

2012

2018

2024
1998
2000
2002
2004

2008
2010

2014
2016

2020
2022
1997

2001

2005
1995

1999

2003

2007
2009
2011
2013
2015
2017
2019
2021
2023

Our proprietary leading return indicator combines six gauges Our composite valuation indicator combines 11 absolute
spanning valuation, corporate fundamentals and macro and relative valuation metrics and leads equity returns. The
conditions to arrive at expected return – currently suggesting indicator is saying equity returns will be around 30% in the
modest returns. next 12 months.
Source: Bloomberg, BSE, RIMES, MSCI, Morgan Stanley Research.

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Sentiment
Institutional Flows Proprietary Sentiment Indicator

2.0% 12M Institutional Flows to Market Cap -60% 2.0 Oct-09

Composite Sentiment Indicator (CSI)
Jun-99
12M Fwd Sensex Change - Reversed RS Overbought
-40% 1.5 Jan-04
SELL ZONE
Jan-08
1.5% -20% 1.0 Nov-14 Dec-20

0% 0.5 Nov-10

1.0% 20% 0.0

40% -0.5 Apr-07

May-00
-1.0 Aug-06
0.5% 60% Sep-01 Sep 13 Feb 16
Oct-08
Dec-98
80% -1.5 Oversold
BUY ZONE

Mar-20
0.0% 100% -2.0

2000
1998

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024
2008

2015

2018

2021
2009
2010
2011
2012
2013
2014

2016
2017

2019
2020

2022
2023
2024
2025

Institutional flows, like almost all market structure metrics, Our proprietary sentiment indicator combines flows,
are a contra indicator. Flows are off highs, but the structural volatility, implied volatility, trading volumes, breadth and
shifts may distort implications on equity returns in the price momentum to assess sentiment. It is a contra indicator
coming months. and works best at extremes. Recovery in share prices has
taken the indicator to neutral zone.
Source: RIMES, MSCI, Bloomberg, ASA, BSE, CDSL, SEBI, Morgan Stanley Research.

Morgan Stanley Research 15

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Index Target
Our BSE Sensex target of 89,000 implies upside potential of 9% to June
BSE Sensex Outlook: Risk-Reward for Jun 2026
2026. This level suggests that the BSE Sensex would trade at a trailing P/E
1,05,000
Jun-26, probability-weighted outcome @ 88,500 1,00,000(23%) multiple of 23.5x, ahead of the 25-year average of 21x. The premium over
95,000 the historical average reflects greater confidence in the medium-term
85,000 growth cycle in India, India's lower beta, a higher terminal growth rate and
89,000 (+9%)
a predictable policy environment.
75,000 82,059

65,000 Base case (50% probability) – BSE Sensex 89,000: This level assumes
70,000 (-14%)
55,000 continuation in India's gains in macro stability via fiscal consolidation,
45,000 increased private investment and a positive gap between real growth and
real rates. Robust domestic growth, slow growth in the US but no
Jun-24
Jun-22

Dec-22

Jun-23

Dec-23

Dec-24
Sep-24

Jun-25

Dec-25

Jun-26
Sep-22

Sep-23

Sep-25
Mar-23

Mar-24

Mar-25

Mar-26
recession and benign oil prices are also part of our assumptions. In our
base case, we also assume a benign India-US trade deal. We use another
Base Case Current Price
(Jun 2026) (30 May, 2025)
Historical
Performance
50bp reduction in short-term interest rates and a positive liquidity
e environment as the base case for monetary policy. We do not anticipate a
Macro Forecasts at a Glance bunching of issuances, and the retail bid keeps its nose ahead of the
supply. Sensex earnings compound at 16.8% annually through F2028.
F2025E F2026E F2027E
GDP Growth 6.3% 6.5% 6.5% Bull case (30% probability) – BSE Sensex 100,000: In addition to the
Average CPI 4.9% 4.3% 4.3% above, oil prices are persistently below the US$65s, resulting in better
Repo Rate (year end) 6.3% 5.8% 5.8% terms of trade and prompting more rate cuts from the RBI. The global
trade war is curtailed by complete reversals in positions on tariffs, leading
CAD% of GDP -0.7% -0.9% -1.0%
to improved growth prospects. Government reforms surprise to the upside
Sensex EPS (MS top down) 3463 4125 4879 with a slew of GST rate cuts and some progress on farm laws. Earnings
EPS growth YoY 14.7% 19.1% 18.3% growth compounds at 19% annually over F2025-28.
Sensex PE 22.4 18.8 15.9
Bear case (20% probability) – BSE Sensex 70,000: Oil prices surge past
Sensex EPS (consensus) 3286 3832 4415
US$100/barrel, the RBI ends up tightening to protect macro stability,
Broad Market Earnings Growth 16% 20% 22% global growth slows meaningfully, and notably the US slips into recession.
Broad Market PE 22.3 18.5 15.2 Sensex earnings compound at 15% annually over F2025-28 with
perceptibly lower growth in F2026 and equity multiples de-rate to reflect
Source: RIMES, Morgan Stanley Research (E) estimates.
poor macro conditions.

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Portfolio Strategy
Recap of our biggest sector views:
Sector Model Portfolio
Perf. Vs MSCI India
• Consumer Discretionary (+300bp): We expect a recovery in urban demand to aid
OW/ UW
Sector MSCI Wt (%)
(bps)
YTD 12M overall consumption demand.
MSCI India (abs) 3% 7%
Consumer Disc. 12.6 300 -6% -2% • Industrials (+400bp): Strong government capex and a nascent pickup in private
Industrials 9.2 300 1% -8% capex drive our overweight.
Financials 31.2 200 8% 11%
Comm Services 4.6 0 9% 17% • Financials (+300bp): Peaking short rates, higher credit growth and low credit costs
Consumer Staples 6.4 0 -2% -7% imply outperformance for Financials, especially for the non-bank lenders.
Technology 10.0 0 -17% 1%
Utilities 3.8 -100 -5% -20%
Energy 9.0 -200 9% -10% • Communication Services: Pricing power could improve but we find better
Healthcare 5.6 -200 -9% 9% opportunities elsewhere.
Materials 7.6 -300 5% -6%
• Consumer Staples: Fundamentals could improve as rural growth has recovered.
Focus List However, stocks remain richly valued. In our barbell strategy, we prefer cyclical
Price as on
Market Cap 3M ADTV consumption.
Stock Rating Sector 29 May 2025 12M Perf
(US$ bn) (US$ mn)
(INR)
• Technology: Position reflects our barbell strategy. Least exposed to domestic
Jubilant FoodWorks OW Cons Disc 670 5.2 15 30.7%
growth although US recession is a risk.
Maruti Suzuki India OW Cons Disc 12,392 45.6 56 -3.1%

Trent OW Cons Disc 5,657 23.5 81 21.1% • Utilities (-100bp): We are UW given the sector’s lack of cyclicality.
Titan Company OW Cons Disc 3,588 37.3 37 6.2%

Bajaj Finance OW Financials 9,204 66.6 125 35.4% • Energy (-200bp): We prefer domestic cyclicals over global cyclicals.
ICICI Bank OW Financials 1,457 121.6 197 32.2%

Interglobe Aviation OW Industrials 5,322 24.1 97 32.1%

• Healthcare (-200bp): We are avoiding defensive sectors.
Larsen & Toubro OW Industrials 3,655 58.9 90 0.6%
• Materials (-300bp): We prefer domestic materials over global. In addition, we take
Ultratech Cement OW Materials 11,269 38.1 46 12.4%
cyclical exposure via industrials.
Coforge OW Technology 8,631 6.7 70 67.9%

Source: RIMES, MSCI, Morgan Stanley Research; Past performance is no guarantee of future results.

Morgan Stanley Research 17

M
Foundation

Politics and Macro Conditions

India’s Relative Economic Policy Uncertainty Index Depleted Capital Stock => Capital Spending
0 100% 22%
India Economic Policy Uncertainty Index relative to World (3MMA) (pushed Public and Private Corporate Capex, % of GDP
forward 3M) on reverse scale -LS 80% 21%
MSCI India YoY perf. Relative to ACWI MSe
100 60% 20%

40% 19%
200
20% 18%

0% 17%
300
-20% 16%

400 -40% 15%

F2014

F2018

F2025E
F2024E

F2026E

F2027E

F2028E
F2012

F2013

F2015

F2016

F2017

F2019

F2020

F2021

F2022

F2023
2004

2016
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

2017
2018
2019
2020
2021
2022
2023
2024
2025
Bank Credit Growth Investments
35% 50,000 Total Government Private Sector
Credit growth (3Y CAGR)
45,000
30% 40,000 New Investment Projects, Rs
35,000 bn (4Q trailing sum)
25%
30,000
20% 25,000
20,000
15% 15,000
10,000
10% 5,000
0
5%

2009

2015

2022
2003
2004
2005
2006
2007
2008

2010
2011
2012
2013
2014

2016
2017
2018
2019
2020
2021

2023
2024
2025
2002

2006

2010

2014

2018
2000

2004

2008

2012

2016

2020

2022

2024

Source: CEIC, Haver, Economic Policy Uncertainty Index, RIMES, MSCI, Morgan Stanley Research (E) estimates.

18
M
Foundation

Politics and Macro Conditions

Government Expenditure Growth Fiscal Deficit
40% 10% 17%
12M trailing Government expenditure growth -LS Consolidated Fiscal Deficit % of GDP
35% 9% 15%
Consol deficit including PSE borrowings
30% 8%
13%
25% 7%
20% 6% 11%
15% 5% 9%
10% 4%
7%
5% 3%
0% 2% 5%
-5% 12M trailing Fiscal Deficit % of GDP -RS 1% 3%

F1995

F2013

F2025E
F2027E
F1983
F1985
F1987
F1989
F1991
F1993

F1997
F1999
F2001
F2003
F2005
F2007
F2009
F2011

F2015
F2017
F2019
F2021
F2023
-10% 0%
2004

2008

2012

2016

2020
2002
2003

2005
2006
2007

2009
2010
2011

2013
2014
2015

2017
2018
2019

2021
2022
2023
2024
2025
Inflation PMIs
20% Ex-food 64
WPI CPI
15% 60

10% 56

52
5%
48
0%
Manufacturing PMI
44
-5% Services PMI
40
Sep-15

Sep-16

Sep-17

Sep-18

Sep-19

Sep-20

Sep-21

Sep-22

Sep-23

Sep-24
May-17

May-20

Jan-23
Jan-15
May-15

Jan-16
May-16

Jan-17

Jan-18
May-18

Jan-19
May-19

Jan-20

Jan-21
May-21

Jan-22
May-22

May-23

Jan-24
May-24

Jan-25
-10%
2004

2014
1996

1998

2000

2002

2006

2008

2010

2012

2016

2018

2020

2022

2024

Source: Bloomberg, RBI, CSO, CEIC, Morgan Stanley Research (E) estimates.

Morgan Stanley Research 19

M
Foundation

Politics and Macro Conditions

Inter-bank Liquidity Policy Rates
140 12% Repo Rate
Interbank Liquidity Rev repo
120
(US$ bn) Cash Reserve Ratio
100 10%
91D Yield
80
60 8%

40
6%
20
0
4%
-20
-40 2%
Jul-15

Jul-23
Jul-16

Jul-17

Jul-18

Jul-19

Jul-20

Jul-21

Jul-22

Jul-24
Jan-20
Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

Jan-21

Jan-22

Jan-23

Jan-24

Jan-25

2025
2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023
M3 to M0 Real Rates
12 India 3M real rate (on CPI) [%] - Pushed Fwd 6 months 120%
5.9 (%) Sensex 12M Perf. - RS
M3 to M0
8 90%

5.6 4 60%

0 30%
5.3
-4 0%
5.0
-8 -30%

4.7 -12 -60%

2020

2022

2024
1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018
2010

2016

2023
2009

2011

2012

2013

2014

2015

2017

2018

2019

2020

2021

2022

2024

2025

Source: Bloomberg, RBI, CSO, CEIC, Morgan Stanley Research.

20
M
Foundation

Politics and Macro Conditions

External Balance Sheet Export Growth
8.0% 100% 60%
Overall BoP
Exports - 2Y CAGR - 3MMA
Sensex YoY - RS 80%
6.0% 40%
60%
4.0%
40% 20%
2.0% 20%
0%
0%
0.0%
-20% -20%
-2.0%
-40%
-4.0% -60% -40%

1998

2002

2006
2000

2004

2008

2010

2012

2014

2016

2018

2020

2022

2024
2002

2018
1992
1994
1996
1998
2000

2004
2006
2008
2010
2012
2014
2016

2020
2022
2024
Foreign Flows Terms of Trade: Crude Oil
450 Brent Rel to Copper YoY change
5Y trailing Gross FDI vs Net FPI flows
400 (Equity + Debt) US$ bn 80% MSCI India Rel to EM YoY Returns (Right reverse scale) -30%
350 60% -20%
Gross FDI (US$ Bn)
300 40%
Net Invst (Eq + Debt) (US$ bn) -10%
250
20%
200 0%
0%
150 10%
100 -20%
20%
50 -40%
0 -60% 30%
-50 -80% 40%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025

2006

2010

2014
2002

2004

2008

2012

2016

2018

2020

2022

2024
Source: RBI, CEIC, CSO, Morgan Stanley Research.

Morgan Stanley Research 21

M
Foundation

Politics and Macro Conditions

Declining Volatility in Inflation and Lower Headline Inflation Falling Primary Deficit
CPI (YoY) Volatility in CPI (3Y Std Dev) - RS 6%
15% 6% Primary Deficit, % of GDP
13% 5%
5%
11% 4%
4%
9% 3%
3%
7% 2%
2% 1%
5%
3% 1% 0%
1% 0% -1%

F2025RE
F1985
F1987
F1989
F1991
F1993
F1995
F1997
F1999
F2001
F2003
F2005
F2007
F2009
F2011
F2013
F2015
F2017
F2019
F2021
F2023
1991

2015
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013

2017
2019
2021
2023
2025
Rising Real GDP Growth Relative to Real Interest Rates India’s Declining Oil Intensity
Real Yield (10Y) Real GDP Growth - Real Yield (10Y) - 3Y Avg Real GDP YoY - RS
10% 8% 1.1
8% 7% Number of Barrels imported per
1.0
6% 6% unit of GDP (Rebased to 2007)
4% 5% 0.9
2% 4%
0.8
0% 3%
-2% 2% 0.7
-4% 1% 0.6
-6% 0%
-8% -1% 0.5

FY09
FY07
FY08

FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23E
FY24E
1998

2005

2012

2019
1997

1999
2000
2001
2002
2003
2004

2006
2007
2008
2009
2010
2011

2013
2014
2015
2016
2017
2018

2020
2021
2022
2023
2024
2025

Source: CEIC, RBI, RIMES, IBES, MSCI, Bloomberg, Morgan Stanley Research Estimates

22
M
Foundation

MNC Sentiment Index

MNC Sentiment Index: India vs. China MNC Sentiment Index vs. FDI Flows
50 3.5%
Sentiment Score India MNC China MNC MNC Sentiment Score (LS)
3.3%
50 45
Gross FDI Flows - 12 M trailing sum (as a % of GDP) 3.1%
40 2.9%
40
35 2.7%
2.5%
30 30
2.3%
25 2.1%
20
20 1.9%
1.7%
10 15 1.5%
10 1.3%
0

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19

Mar-20

Mar-21

Mar-22

Mar-23

Mar-24

Mar-25
4Q12

2Q16

4Q19

2Q23
4Q09
2Q10
4Q10
2Q11
4Q11
2Q12

2Q13
4Q13
2Q14
4Q14
2Q15
4Q15

4Q16
2Q17
4Q17
2Q18
4Q18
2Q19

2Q20
4Q20
2Q21
4Q21
2Q22
4Q22

4Q23
2Q24
4Q24
MNC Sentiment Index vs. MSCI India EPS Change MNC Sentiment Index vs. MSCI India Index YoY
30% MSCI India EPS (2Y CAGR) 80% YoY MSCI India
50% 80%
YoY Change in MNC Sentiment Score (RS) 60% YoY Change in MNC Sentiment Score (RS)
20% 40% 60%
40% 30% 40%
10% 20%
20% 20%
10%
0% 0% 0%
0%
-20% -20%
-10% -10%
-40% -20% -40%
-20% -30% -60%
-60%
-40% -80%
-30% -80%
Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19

Mar-20

Mar-21

Mar-22

Mar-23

Mar-24

Mar-25
Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19

Mar-20

Mar-21

Mar-22

Mar-23

Mar-24

Mar-25

Source: Morgan Stanley Research.

Morgan Stanley Research 23

M
Foundation

Liquidity
P/E Relative to Earnings Growth – Force of the Bid Small-cap Liquidity
40% 200%
Trailing 3 year CAGR Trailing 5 year CAGR Average MSCI India Small Cap MSCI India
30% 150%
20% 100%
10% 50%

0% 0%

-10% -50%
Index change minus EPS 12M Index change minus
-20% growth for MSCI India -100%
EPS growth
-30% -150%
1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025

2002

2007

2013

2018
1999
2000
2001

2003
2004
2005
2006

2008
2009
2010
2011
2012

2014
2015
2016
2017

2019
2020
2021
2022
2023
2024
2025
Financial Conditions Index vs. Share Prices Change in Forex Reserves vs. Change in Sensex
100% 2.0 100% 6M sensex change (LS) 40%
6M Sensex change - LS
80% 1.5 80% 30%
FCI 6M change in Forex
60% 60% Reserves
1.0 20%
40% 40%
0.5 10%
20% 20%
- 0%
0% 0%
(0.5) -10%
-20% -20%

-40% (1.0) -40% -20%

-60% (1.5) -60% -30%

2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025

Source: Bloomberg, RBI, CEIC, RIMES, MSCI, Morgan Stanley Research.

24
M
Foundation

Corporate Fundamentals
Morgan Stanley Top-down Sensex EPS Estimates Trailing Earnings
Sensex Index F25e F26e F27e F28e 30%
MS Top Down Estimates BSE Sensex - 5Y CAGR
Bear Case 3,463 3,949 4,753 25%
EPS Growth 9.9% 14.0% 20.4% BSE Sensex - 5Y CAGR -
Base Case 3,152 3,597 4,173 5,017 20%
4Q Moving Avg
EPS Growth 5.8% 14.1% 16.0% 20.2%
15%
Bull Case 3,755 4,412 5,329
EPS Growth 19.1% 17.5% 20.8% 10%
Consensus EPS Estimates 3,616 4,206 - Earnings Growth
EPS Growth 14.7% 16.3% 5%
MS Analyst Estimates
0%
EPS 3,534 4,061 -
EPS Growth 12.1% 14.9% -5%
Broad Market
MS Top Down Estimates -10%

2004
2005
2006
2007
2003

2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
EPS Growth 6% 12% 20% 20%
India's Profit and ROE Cycle
Earnings vs. Nominal GDP
8% Corporate Profits to GDP - 24% 10000
India
7% 22% on a log scale
MSCI India ROE - RS
6% Nominal GDP
20%
5%
18% Earnings Indexed to 100
4% 1000
16%
3%
14%
2%
1% 12%
100
0% 10%

FY2014
FY1994
FY1996
FY1998
FY2000
FY2002
FY2004
FY2006
FY2008
FY2010
FY2012

FY2016
FY2018
FY2020
FY2022
FY2024E
FY2026E
F2012
F2014
F2016
F2018
F2020
F2022
F2024E
F2026E
F1992
F1994
F1996
F1998
F2000
F2002
F2004
F2006
F2008
F2010

Source: Company data, CEIC, CMIE, Haver, RIMES, IBES, Worldscope, MSCI, Capitaline, Morgan Stanley Research (e) estimates.

Morgan Stanley Research 25

M
Foundation

Corporate Fundamentals
Earnings Drawdown or Indicator of Earnings Recession BSE Sensex Consensus EPS Growth Trend
0% 22%
BSE Sensex Consensus EPS growth trend
F24
-5% 20%

-10% 18%

-15% 16% F27e -

4206
-20% 14%
F25 to F27
12% EPS CAGR
-25% F26e -
MSCI India EPS drawdown from peak 3616
-30% 10%
F25

-35% 8%

Apr-22

Apr-23

Apr-24

Apr-25
Jul-21

Oct-21

Jul-22

Oct-22

Jul-23

Oct-23

Jul-24

Oct-24
Jan-22

Jan-23

Jan-24

Jan-25
1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024
Dividends and Buybacks Earnings Estimate Revisions Breadth
10,000 40% 15% Analyst Revisions 3MMA 100%
MSCI India Dividend Payout Ratio - RS
9,000
MSCI India YoY - RS 80%
8,000 12M rolling share buyback (US$ 35% 10%
million) 60%
7,000
5%
6,000 30% 40%
5,000 0% 20%
4,000 25% 0%
-5%
3,000 -20%
2,000 20% -10%
-40%
1,000
-15% -60%
0 15%

2018

2025
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017

2019
2020
2021
2022
2023
2024
2015

2020
2008
2009
2010
2011
2012
2013
2014

2016
2017
2018
2019

2021
2022
2023
2024
2025

Source: RIMES, IBES, CEIC, CMIE, Haver, Capitaline, Morgan Stanley Research (E) estimates.

26
M
Foundation

Corporate Fundamentals
Balance Sheet Recession Indicator Bond Spreads
40% 2.4 Spread between A+ amd AAA corporate bonds

30%
MS coverage
2.0

20% 1.6

10% 1.2

0% 0.8
0.4
-10%
5 Year 1 Year
Gap between revenue growth and 0.0
-20%
MCLR / Base rate ( 3-quarter average)
-0.4
-30%

Jul-15

Jul-16

Jul-17

Jul-18

Jul-19

Jul-20

Jul-21

Jul-22

Jul-23

Jul-24
Jan-21
Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

Jan-20

Jan-22

Jan-23

Jan-24

Jan-25
2002

2011

2022
2003
2004
2005
2006
2007
2008
2009
2010

2012
2013
2014
2015
2016
2017
2018
2019
2020
2021

2023
2024
ROE and Asset Turnover Trend Corporate Debt vs. Policy Rate
65% Corporate Debt to GDP 10.0%
25% MSCI India 110%
60% Repo Rate - RS 9.0%
100%
20%
ROE trend 55% 8.0%
90%
15% 50% 7.0%
80% 45% 6.0%
10%
70% 40% 5.0%
5%
60% 35% 4.0%
net proft margin
Asset Turn Trend - RS
30% 3.0%
0% 50%

F2006

F2019

F2024E
F2025E
F2026E
F2000
F2001
F2002
F2003
F2004
F2005

F2007
F2008
F2009
F2010
F2011
F2012
F2013
F2014
F2015
F2016
F2017
F2018

F2020
F2021
F2022
F2023
1999

2013
1995

1997

2001

2003

2005

2007

2009

2011

2015

2017

2019

2021

2023

Source: Company data, Worldscope, RIMES, MSCI, CEIC, Morgan Stanley Research (E) estimates.

Morgan Stanley Research 27

M
Foundation

Corporate Fundamentals
Breadth of Corporate Performance India’s Relative EPS Growth to EM
80% 40% Rolling 2Y Fwd EPS Growth - MSCI India minus MSCI EM
% of Cos with >10% Revenue Growth
70% % of Cos with >10% Net Pft Growth 30%
60%
Broad Market
20%
50%
10%
40%

30% 0%

20% -10%
10% -20%
Dec-07

Dec-14

Dec-21
Dec-04
Dec-05
Dec-06

Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13

Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20

Dec-22
Dec-23
Dec-24

2002
1996

1998

2000

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024
YoY Revenue and Profit Growth for Broad Market Large Companies’ Share in Total Profits
180% Revenue growth ex 60% Share of top companies by net profit as % of total broad
Earnings growth
58% market net profits (trailing 4Q)
150% ex Oil PSU Oil PSU - RS 50%

120% 40% 53%

30%
90% 48%
20%
60%
10% 43%
30%
0% 38%
0% -10%
-30% 33%
-20%
-60% -30% 28%
2016
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

2017
2018
2019
2020
2021
2022
2023
2024

2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Source: Company data, Capitaline, Morgan Stanley Research.

28
M
Foundation

Corporate Fundamentals
India’s Relative ROE India’s Relative Net Margin
14% 8% R
ROE (Relative to MSCI India) Net Margin (Relative to MSCI India)
12% EM 6%
10% AC World 4%
8% BRIC
2%
6% APxJ
0%
4%
2% -2%
0% -4%
EM AC World
-2% -6%
BRIC APxJ
-4% -8%
2001

2003

2005

2020

2022
1996
1997
1998
1999
2000

2002

2004

2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

2021

2023

1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
India’s Relative Asset Turn India’s Relative Net Debt to Equity
60% Asset Turn (Relative to MSCI India) 60% Net debt to Equity (Relative to MSCI India)
EM
50% 40%
AC World
EM AC World BRIC APxJ
40% BRIC
APxJ 20%
30%
20% 0%
10%
-20%
0%
-10% -40%

-20% -60%
2002

2011

2020
1996
1997
1998
1999
2000
2001

2003
2004
2005
2006
2007
2008
2009
2010

2012
2013
2014
2015
2016
2017
2018
2019

2021
2022
2023

1999

2001

2020

2022
1996
1997
1998

2000

2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

2021

2023
Source: Worldscope, RIMES, MSCI, Morgan Stanley Research.

Morgan Stanley Research 29

M
Foundation

Corporate Fundamentals
Equity Issuances Debt Issuances
60 24 160 55
12M rolling Equity Issuances - US$bn 12M rolling Debt Issuances
50
50 20 140 - US$bn
3M rolling Equity Issuances - US$bn - RS 45
3M rolling Debt Issuances - 40
40 16 120 US$bn - RS
35
30 12 100 30
25
20 8 80 20
60 15
10 4
10
0 0 40 5

2011

2012

2013

2014

2015
2010

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025
2014

2021
2010

2011

2012

2013

2015

2016

2017

2018

2019

2020

2022

2023

2024

2025
M&A Activity Equity Issuances
60 2,200 40 MSCI India PE - Pushed Forward 2 months 4.5%
12M rolling M&A actiivty - US$bn 12M Rolling Equity Issuances/GDP (RS)
4.0%
12M rolling number of M&A - RS 2,000 35
50 3.5%
1,800 30 3.0%
40 1,600 2.5%
25
2.0%
30 1,400
20 1.5%
1,200 1.0%
20 15
1,000 0.5%
10 0.0%
10 800

2009

2014

2019

2024
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008

2010
2011
2012
2013

2015
2016
2017
2018

2020
2021
2022
2023

2025
2011

2013

2015
2010

2012

2014

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Source: CMIE, Morgan Stanley Research.

30
M
Foundation

Corporate Fundamentals
Sector Fundamentals
3M Revision 3M Revision
Change in 1Y ROE as SD F24 F24 FCF/ Trailing 5Y F25 EPS F26 EPS
MSCI Sectors F24E ROE in F25 EPS in F26 EPS
Fwd ROE from Avg Net D/E Sales CAGR in EPS growth growth
growth growth

Comm. Services (0.4) 1.8 6.2% NA

Consumer Disc. 17.3% 1.4% 0.2 0.4 8.2% 20.8% -3% -2.7% 17% -2.9%
Consumer Staples 22.3% -0.3% (1.7) -0.1 12.8% 3.9% 0% -4.2% 13% -0.6%
Energy 14.5% -3.5% (0.9) 0.3 2.4% 9.4% -23% -5.3% 19% 1.9%
Financials 14.5% 0.0% (0.0) 1.4 13.2% 13.5% 14% 1.0% 13% -0.9%
Health Care 17.6% -1.4% (0.3) -0.1 14.0% 11.3% 18% 1.3% 14% -1.7%
Industrials 22.1% -1.1% 0.7 0.6 5.6% 7.7% 11% -3.6% 28% 0.8%
Materials 10.9% -0.2% (0.7) 0.6 0.1% 5.6% 3% -14.0% 43% 1.6%
Technology 28.6% -0.4% (0.2) -0.3 17.1% 5.6% 8% -0.5% 11% -1.3%
Utilities 14.3% -0.2% 0.2 1.2 6.4% -4.6% 26% 16.5% 13% -0.1%

Sector Market Dynamics

5 Year CAGR 200DMA 3M Change in 3M change in

MSCI Sectors Abs 3M perf Abs 12M perf Abs YTD perf 12M Beta Sell Side Reco
Perf Deviation 12M Beta Sell Side Reco

Comm. Services 16% 25% 60% 24% 60% 1.0 0.03 83% 6%
Consumer Disc. 13% 6% 28% 31% 52% 1.1 0.05 38% 4%
Consumer Staples 11% 1% -3% 10% 15% 0.5 0.09 60% 5%
Energy 18% -4% 11% 17% 10% 1.1 -0.11 47% 15%
Financials 15% 19% 22% 22% 20% 1.0 0.03 70% 10%
Health Care 10% 18% 31% 19% 44% 0.7 0.13 38% 12%
Industrials 26% -3% 29% 36% 35% 1.5 -0.03 58% 9%
Materials 12% 1% 6% 23% 21% 0.5 -0.01 21% 8%
Technology -2% 10% 1% 17% 10% 1.3 0.03 13% -4%
Utilities 13% -16% 5% 17% 12% 1.4 -0.45 39% 12%

Sector Valuations
Value
PE Rel. to LT Implied LT Implied Assigned to
MSCI Sectors Trailing PE Trailing PB Div Yield
MSCI India EPS Growth Div Growth Future
SD from Avg SD from Avg SD from Avg SD from Avg Growth SD from Avg
Comm. Services NA 0.3 8.1 0.3 11.7 3.9 0.4% (0.7) 97% 24% 90% 0.6
Consumer Disc. 33.5 (0.0) 1.3 (0.1) 6.6 1.9 0.6% (1.2) 11% 18% 94% 1.1
Consumer Staples 52.2 1.3 2.0 0.3 11.1 (0.0) 1.5% (0.3) 22% 8% 92% 0.7
Energy 17.6 0.8 0.7 (0.2) 2.0 (0.2) 1.7% (0.3) -2% 7% 90% 0.9
Financials 19.1 0.0 0.7 (0.8) 2.7 0.2 0.8% (0.6) -13% 15% 93% 0.8
Health Care 36.4 0.6 1.4 (0.5) 5.9 0.3 0.6% (0.7) 9% 20% 95% 0.9
Industrials 47.1 1.3 1.8 1.1 9.1 2.1 0.6% (0.8) 8% 18% 92% 0.7
Materials 26.5 (0.1) 1.0 (0.4) 7.2 (0.1) 2.8% 2.4 6% 2% 86% 0.0
Technology 33.2 1.0 1.3 0.7 3.2 1.1 1.4% (0.4) 11% 9% 85% 0.7
Utilities 17.6 0.7 0.7 (0.1) 2.4 0.8 2.3% (0.1) 17% 4% 99% 0.7
Source: RIMES, MSCI, Bloomberg, Morgan Stanley Research.

Morgan Stanley Research 31

M
Foundation

Corporate Fundamentals
MSCI India – Earnings Contribution by Sector MSCI India – Earnings Contribution by Sector
MSCI India - Earnings Contribution by Sector 15% MSCI India - Earnings Contribution by Sector
45%
Consumer Discretionary Energy
40%
Financials Materials 10%
35% Technology
30%
5%
25%
20%
15% 0%
Consumer Staples
10%
Health Care
5% -5% Industrials
0% Comm Services
Utilities
-5% -10%

2006

2012

2014

2020
2003
2004
2005

2007
2008
2009
2010
2011

2013

2015
2016
2017
2018
2019

2021
2022
2023
2024
2025
2003

2006

2009
2004
2005

2007
2008

2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
MSCI India – Sector earnings growth relative to Index MSCI India – Sector earnings growth relative to Index
500 Sector EPS relative to MSCI India (Rebased to Jan '03)
250 Sector EPS relative to MSCI India (Rebased to Jan '03)
450 Consumer Staples Health Care
Consumer Discretionary
400 Energy 200 Materials Comm Services
350 Financials
Utilities
300 Industrials 150
Technology
250
200 100
150
50
100
50 0
0
-50 -50
2003

2006

2009
2004
2005

2007
2008

2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025

2003

2005

2011

2013

2019
2004

2006
2007
2008
2009
2010

2012

2014
2015
2016
2017
2018

2020
2021
2022
2023
2024
2025
Source: RIMES, MSCI, Morgan Stanley Research

32
M
Foundation

Valuations
P/sales: Relative and Absolute Absolute P/B
5.0 7 MSCI India
MSCI India
4.5 PB
MSCI India Rel. to EM 6
Price to Sales LTA
4.0
+1 Stdev
3.5 5
-1 Stdev
3.0
4
2.5
2.0 3
1.5
2
1.0
0.5 1
1997

2007

2017
1995

1999

2001

2003

2005

2009

2011

2013

2015

2019

2021

2023

2025

2011
1995

1997

1999

2001

2003

2005

2007

2009

2013

2015

2017

2019

2021

2023

2025
MSCI India P/E Absolute and Relative Valuations MSCI India P/B Relative to MSCI EM
44 2.4 2.6 PB
MSCI India PE (LS) LTA MSCI India (relative to EM)
2.2 +1 Stdev
MSCI India PE relative to EM- RS 2.4
37 2.0 -1 Stdev
1.8 2.2
30 1.6 2.0
1.4
1.8
23 1.2
1.0 1.6
15 0.8 1.4
0.6
1.2
8 0.4

2008
2009

2015
2004
2005
2006
2007

2010
2011
2012
2013
2014

2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2008

2022
1996

1998

2000

2002

2004

2006

2010

2012

2014

2016

2018

2020

2024

Source: RIMES, MSCI, Bloomberg, Morgan Stanley Research.

Morgan Stanley Research 33

M
Foundation

Valuations
Cyclically Adjusted P/E Market Cap to GDP
60x India Shiller PE 90%
Market Cap ex Nifty to GDP
55x
in USD 80%
50x Nifty market cap to GDP
in INR 70%
45x
60%
40x
35x 50%
30x 40%
25x 30%
20x 20%
15x 10%
10x
0%
2006

2017

2024
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016

2018
2019
2020
2021
2022
2023

2025

2010

2020
2002

2004

2006

2008

2012

2014

2016

2018

2022

2024
P/B, P/E, EV/EBITDA, P/sales Relative to EM Share in Gain in World Market Cap > Gain in Global GDP
4.3 MSCI India Relative to 2.4 4.5% Share of India (in World Market Cap) Share of India (in World GDP) - RS
EV/EBITDA MSCI EM 2.2 4.0%
3.8 Price to Sales 2.0 3.5%
3.3 PB
PE - RS 1.8
3.0%
2.8 1.6
2.5%
1.4
2.3 1.2 2.0%

1.8 1.0 1.5%

0.8 1.0%
1.3
0.6 0.5%
2003

2008

2013
2004
2005
2006
2007

2009
2010
2011
2012

2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024E
2025E
2026E
2027E
0.8 0.4
1995

2005

2017
1997

1999

2001

2003

2007

2009

2011

2013

2015

2019

2021

2023

2025

Source: RIMES, MSCI, BSE, Bloomberg, Morgan Stanley Research.

34
M
Foundation

Valuations
Book Yield vs. Bond Yield Value Assigned to Future Growth
60%
Gap between book yield and bond yield 90% Value assigned to future growth for MSCI India Index
50% 80%
70%
40% 60%
50%
30%
40%
20% 30% 10-year average 5 Year trailing average

20%
10%
10%
0% 0%
1994

2000

2006
1996

1998

2002

2004

2008

2010

2012

2014

2016

2018

2020

2022

2024

2004

2006

2024
1996

1998

2000

2002

2008

2010

2012

2014

2016

2018

2020

2022
Equity vs. Bond Multiples Valuation Summary
2.6 Current Average z-score %ile of current
Equity multiple (using 12M fwd PE) over bond multiple (using reading
2.2 10-year bond yields) MSCI India
Trailing PE 26.6 19.5 1.2 93%
1.8 12M Fwd PE 22.1 15.2 1.8 95%
Trailing PB 3.9 3.1 1.0 87%
1.4 Dividend Yield 1.1% 1.4% -0.8 23%
VAFG 66% 55% 0.9 83%
1.0 Modified EY Gap -1.8% -1.4% -0.2 50%
EY Gap -2.5% -2.9% 0.2 63%
0.6
MSCI India Relative to EM
Trailing PE 1.7 1.3 1.3 87%
0.2
12M Fwd PE 1.8 1.3 1.6 92%
1998
1996

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

Trailing PB 2.1 1.7 1.2 84%

Dividend Yield 0.4 0.6 -0.9 19%
Source: RIMES, MSCI, BSE, Bloomberg, Morgan Stanley Research.

Morgan Stanley Research 35

M
Foundation

Valuations
MSCI India Small Cap: Price-to-Earnings MSCI India Small Cap: Price-to-Book
5.0 MSCI India Small Cap PB relative 1.1
70 2.9 MSCI India Small Cap PB (LS)
MSCI India Small Cap PE (LS) to MSCI India (RS)
4.5 1.0
60
2.4 4.0 0.9
MSCI India Small Cap PE
50 relative to MSCI India (RS) 3.5
0.8
40 1.9
3.0
0.7
30 2.5
1.4 0.6
20
2.0
0.9 1.5 0.5
10
1.0 0.4
0 0.4
0.5 0.3
1998

2016
1996

2000

2002

2004

2006

2008

2010

2012

2014

2018

2020

2022

2024

2008

2012
1996

1998

2000

2002

2004

2006

2010

2014

2016

2018

2020

2022

2024
MSCI India Small Cap: Forward Price-to-Earnings MSCI India Small Cap: Dividend Yield
MSCI India Small Cap Fwd PE 6% 2.5
30 1.4
MSCI India Small Cap Fwd PE 1.2 5% MSCI India Small Cap
25 relative to MSCI India (RS) relative to MSCI India
2.0
(RS)
1.0 4%
20
1.5
0.8
15 3%
0.6 1.0
10 2%
0.4
5 0.5
0.2 1% MSCI India Small
Cap Div Yield (LS)
0 0.0 0% -
2010

2014
1996

1998

2000

2002

2004

2006

2008

2012

2016

2018

2020

2022

2024

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024
Source: RIMES, MSCI, Morgan Stanley Research.

36
M
Foundation

Sentiment
Performances Across Indices Relative Performance of Large Caps to Small Caps
in US$ 30-May-25 1M 3M 6M 12M YTD 35%
MSCI India 1,051 1.1% 15.9% -0.3% 4.7% 2.6%
25%
MSCI EMF 1,157 4.0% 5.5% 7.3% 10.3% 7.6%
MSCI EM Asia 635 Mat 5.2% 6.6% 11.3% 6.4% 15%
MSCI Europe 2,371 3.8% 7.0% 15.4% 10.4% 18.4%
MSCI ACWI 879 5.5% 1.9% 2.0% 12.0% 4.5% 5%
MSCI Asia Pacific 195 4.5% 6.5% 6.5% 10.4% 7.5%
-5%
MSCI EM Frontier 3,789 4.2% 4.8% 6.9% 9.0% 7.4%
Dow Jones 42,270 3.9% -3.6% -5.9% 9.3% -0.6% -15%
India's Rank in 24 EM countries 16 6 19 16 17
in local currency -25%
BSE Sensex 81,451 1.5% 11.3% 2.1% 10.1% 4.2%
Nifty Index 25,940 1.7% 11.9% 2.6% 9.9% 4.7%
-35%
BSE 100 Index 11,236 2.2% 12.9% 1.5% 9.1% 3.5% -45%
BSE 200 Index 35,815 2.5% 13.5% 1.0% 7.7% 2.8% 12M returns gap - Sensex vs. Midcap
BSE 500 Index 45,136 3.4% 14.4% 0.2% 7.4% 1.8% -55%
BSE Midcap Index 52,413 5.3% 17.0% -2.0% 5.3% -2.8%
12M returns gap - Sensex vs. Smallcap
BSE Smallcap Index 24,751 10.6% 21.7% -5.0% 10.9% -5.0%
-65%

2007

2009

2022
2006

2008

2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021

2023
2024
Monthly Median Sensex Returns: This Month vs. History BSE Sensex: Deviation from 200 DMA
8% Instances of positive returns (in percent) - RS 80% 40% Sensex vs. Sensex
MoM 200DMA
6% 30%
return 70%
4% 2.7% 3.4% 20%
2.8% 60%
1.9% 1.6%
2% 1.0% 1.1% 10%
1.3% 0.7%
50%
0% 0%
-0.2%
-0.5% -0.7% 40%
-2% -10%
Month's median
-4% returns (LS) 30% -20%

-6% 20% -30%

1996
1998

2016
1980
1982
1984
1986
1988
1990
1992
1994

2000
2002
2004
2006
2008
2010
2012
2014

2018
2020
2022
2024
Feb

Mar

May

Aug

Sep
Apr
Jan

Jun

Oct

Nov

Dec
Jul

Source: RIMES, MSCI, BSE, Bloomberg, Morgan Stanley Research.

Morgan Stanley Research 37

M
Foundation

Sentiment
Pace of Change in Index (Average Across Five Metrics) Market Trading Activity
120% 250%
20% Average of 5-year CAGR of MSCI India index 12M rolling Cash trading /Market cap
relative to Earnings, Book, Gold and CPI

15% 12M rolling Derivatives trading /Market cap - RS

100%
200%
10%

80%
5%

0% 150%
60%
-5%

-10% 40% 100%

2005

2015
2006
2007
2008
2009
2010
2011
2012
2013
2014

2016
2017
2018
2019
2020
2021
2022
2023
2024
2004

2014
1998

2000

2002

2006

2008

2010

2012

2016

2018

2020

2022

2024
% of trades settled for stock Daily Market Breadth
36% Deliveries as a % of total volumes % of BSE 500 stocks trading above 200DMA
100%
32% 90%
80%
28% 70%
60%
24% 50%
40%
20% 30%
20%
16% 10%
Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19

Mar-20

Mar-21

Mar-22

Mar-23

Mar-24

Mar-25

0% 2002

2007

2016

2022
2000
2001

2003
2004
2005
2006

2008
2009
2010
2011
2012
2013
2014
2015

2017
2018
2019
2020
2021

2023
2024
Source: RIMES, MSCI, BSE, Bloomberg, Morgan Stanley Research.

38
M
Foundation

Sentiment
Put/Call Nifty Implied Volatility Index
0.70 40 Nifty volatility index (VIX)
Unweighted put-call rato (4-week moving total)
0.65
35
0.60
30
0.55
0.50 25
0.45 20
0.40
15
0.35

0.30 10

2012
2010

2011

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025
Jul-19
Jul-15

Jul-16

Jul-17

Jul-18

Jul-20

Jul-21

Jul-22

Jul-23

Jul-24
Jan-15

Jan-22
Jan-16

Jan-17

Jan-18

Jan-19

Jan-20

Jan-21

Jan-23

Jan-24

Jan-25
Value-at-Risk for BSE Index Realized Inter-day Volatility
-16% 5.4% 3M Rolling Interday Volatility
99%/One-week VaR for BSE Sensex 4.9%
-14%
4.4%
-12% 3.9%
3.4%
-10%
2.9%
-8% 2.4%
-6% 1.9%
1.4%
-4% 0.9%
-2% 0.4%

2021
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019

2023
2025
1990

2010

2020
1986
1988

1992
1994
1996
1998
2000
2002
2004
2006
2008

2012
2014
2016
2018

2022
2024

Source: BSE, AFA, Bloomberg, Morgan Stanley Research.

Morgan Stanley Research 39

M
Foundation

Sentiment
India’s Fundamentals = Low Beta Correlation Across Stocks
2.0 1-year rolling beta MSCI India vs. MSCI AC World 55% Explanatory Power of Market Effect 1Y Rolling R-squared
Stock pickers'
1.5 45% time, Jul-06 Stock pickers'
time, Jun-09 Stock
Stock pickers' pickers'
1.0 35% Stock pickers' time, Mar-
time, Sep-04
time, Dec -11 16

0.5 25%
Time for
macro, Aug-
0.0 15%
Time for Time for Time for
macro, Aug- macro, Jul-05
macro, Oct-10
-0.5 5%
2014
2015
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

2016
2017
2018
2019
2020
2021
2022
2023
2024
2025

2004

2006

2021

2023
2003

2005

2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

2022

2024
2025
Correlation of Returns Between India and Rest of World Correlation of Returns Between India and US, China
100% 52 week correlation of returns of MSCI India with 100%
52 week correlation of returns of MSCI India with
MSCI EM
80% 80% China US
MSCI ACWI
60% 60%

40% 40%

20%
20%
0%
0%
-20%
-20%
1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024
2002

2016
1994

1996

1998

2000

2004

2006

2008

2010

2012

2014

2018

2020

2022

2024

Source: RIMES, MSCI, Morgan Stanley Research.

40
M
Foundation

Sentiment
Holding Periods for the Average Market Participant, Investors and FPIs Mutual Fund Cash position
Investors 0.6% 2000
45 Cash (in INR bn) - RS
Average holding period ( in Domestic MFs
40 Months)
0.5% Cash (as a % of Market Cap)
1600
35
0.4%
30 1200
25 0.3%
20 800
0.2%
15
0.1% 400
FPIs
10
5 Market 0.0% 0

Jul-15

Jul-16

Jul-17

Jul-18

Jul-19

Jul-20

Jul-21

Jul-22

Jul-23

Jul-24
Jan-19

Jan-22
Jan-15

Jan-16

Jan-17

Jan-18

Jan-20

Jan-21

Jan-23

Jan-24

Jan-25
0
2004

2008
2001
2002
2003

2005
2006
2007

2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
System Leverage Average Open Interest as a % of Market Cap
2.1% Average open interest (Futures) as a % of Mcap 70
0.25% Advances to Individuals against share, bonds, etc as a % of M cap
Margin Balance (as a % of Mcap) 1.9% Average open interest (Futures) for the month (US$ bn) - RS
60
0.20%
1.7%
50
1.5%
0.15% 40
1.3%
30
0.10% 1.1%
20
0.9%
0.05% 10
0.7%

0.00% 0.5% 0

2008

2017
2005
2006
2007

2009
2010
2011
2012
2013
2014
2015
2016

2018
2019
2020
2021
2022
2023
2024
2025
2010

2017

2024
2006
2007
2008
2009

2011
2012
2013
2014
2015
2016

2018
2019
2020
2021
2022
2023

2025

Source: AMFI, BSE, SEBI, NSDL, RBI, Bloomberg, Morgan Stanley Research.

Morgan Stanley Research 41

M
Foundation

Sentiment
Number of SIP Accounts Ownership Status (Quarter Ended Mar-25)
30.0 140% Total
Overall
YoY Change in no of SIP accounts (mn) Total MSCI Institutional QoQ
120% Institutional FPIs DFIs DMFs
25.0 Inst. Weight Position over Change
YoY Change in no of SIP accounts (in % terms) - RS sector positions
100% MSCI weight
20.0 Comm Services 6% 5% 5% 6% 5% 1.2% 0.4%
80%
15.0 Cons Disc 8% 7% 8% 8% 12% -4.5% 0.3%
60% Cons Staples 5% 12% 8% 7% 7% 0.7% -0.5%
10.0
40% Energy 9% 14% 10% 10% 9% 1.5% 0.5%
5.0 Financials 41% 26% 36% 37% 31% 5.5% -0.2%
20%
Health Care 4% 3% 5% 4% 6% -1.4% -0.3%
0.0 0% Industrials 5% 9% 6% 6% 9% -2.7% -0.3%
-5.0 -20% Materials 6% 8% 7% 6% 8% -1.5% 0.2%
Oct-17
Oct-11

Oct-14

Oct-20

Oct-23
Apr-10

Apr-13

Apr-16

Apr-19

Apr-22

Apr-25
Jul-21
Jul-12

Jul-15

Jul-18

Jul-24
Jan-14
Jan-11

Jan-17

Jan-20

Jan-23
Technology 12% 13% 10% 12% 10% 1.2% -0.1%
Utilities 3% 4% 5% 4% 4% -0.1% 0.1%

Participant Wise Activity Domestic Exceeds Foreign Ownership

28%
FPIs Domestic Investors
Category-wise turnover (May, INR bn) Buy Sell Net 26%
Bank 32 75 -42
24%
Insurance Cos 339 355 -16
Mutual Funds 1703 1390 313 22%
AIF 78 65 13
20%
PMS 108 134 -26
FPI 2518 2371 148 18%
Retail 7456 7529 -74 16%
Others 6011 6327 -315
14%

2018

2019
2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2020

2021

2022

2023

2024
Source: AMFI, BSE, NSE, CMIE, Morgan Stanley Research.

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Sentiment
Domestic Mutual Fund Gross Flows Systematic Investment (SIP) Flows and non-SIP flows
1,000
Inflows into MFs Outflows from MFs SIP Flows (Rs bn) Non SIP flows (Rs bn)
250
800
150
600
50
400
(50)

200
(150)
Gross equity flows (in INR bn)
0 (250)
2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Nov-16
Dec-13

Jan-18
Aug-18
Jun-17

Dec-20
Jul-21

Jan-25
Nov-23
Jun-24
Jul-14
Oct-12

Oct-19

Apr-23
Feb-15
Sep-15
Apr-16

Feb-22
Sep-22
May-13

Mar-19

May-20
Domestic Equity Assets by Style/Sector Net Flows into Indian Equities
Apr-25
4.5%
No. of
Net
Net AUM (Rs
Mutual Fund 12M rolling net flow into stocks (new issues minus buybacks) as a % of
Rs bn
Schemes
flows
bn)
equity asset 4.0% Market cap
(INR bn) share
Multi Cap Fund
3.5%
30 28 1,757 6%
Flexi Cap Fund 39 56 4,355 15% 3.0%
Large Cap Fund 33 25 3,598 12%
2.5%
Large & Mid Cap Fund 31 27 2,632 9%
Mid Cap Fund 30 34 3,690 13% 2.0%
Small Cap Fund 30 41 2,955 10%
1.5%
Dividend Yield Fund 10 1 306 1%
Value Fund/Contra Fund 24 16 1,839 6% 1.0%
Focused Fund 28 14 1,448 5% 0.5%
Sectoral/Thematic Funds 212 2 4,551 15%
ELSS 58 7 2,363 8%
0.0% 2002

2005
2000
2001

2003
2004

2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Total 525 250 29,493

Source: AMFI, BSE, CMIE, Morgan Stanley Research

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Sentiment
FPI Equity vs. Debt Flows Flows: Foreign Portfolios vs. Domestic Mutual Funds
15000 FPI Equity Flows - Trailing 1 month 4000 80,000
12M trailing flows (US$ mn) FPI flows
FPI Debt Flows - Trailing 1 month - RS
10000 2000 60,000 DMF flows
0 40,000
5000
-2000
0 20,000
-4000
-5000 -
-6000
-10000 -8000
(20,000)

US$ mn
-15000 -10000 (40,000)

2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Jun-20

Jun-21

Jun-22

Jun-23

Jun-24
Oct-20

Oct-21

Oct-22

Oct-23

Oct-24
Feb-20

Feb-21

Feb-22

Feb-23

Feb-24

Feb-25
India’s Position in EM Portfolios Sector FPI Flows
India's Weight in GEM Funds* Relative to India's Weight in MSCI EM AUC (in USD Sector Allocation - Asset under 2025 flows (1st
Gap Between FPI holding of Top 75 Co and Broader Market bn) Custody Jan - 15th May)
10% MSCI India US$ total return Performance Relative to MSCI EM (Right) 250 in US$mn
15-05-2025 30-04-2025 15-05-2025 Change
8% 200
Consumer discretionary
121 14% 15% 0.2% -3747
6%
150 Consumer staples 46 6% 6% -0.1% -1844
4% Energy 76 9% 9% 0.0% -410
100 Financials 279 34% 34% -0.5% 345
2%
Healthcare 55 7% 7% -0.2% -811
0% 50
Industrials 75 9% 9% 0.5% -1997

-2%
* Benchmarked to MSCI EM 0
Materials 38 4% 5% 0.1% -1460
Technology 71 8% 9% 0.3% -3370
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Jan-21
Jan-22
Jan-23
Jan-24
Jan-25

Telecoms 39 5% 5% -0.1% 1958

Utilities 30 4% 4% -0.1% -851
Source: AMFI, BSE, EPFR, NSDL, CDSL, SEBI, Morgan Stanley Research.

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Sentiment
India Gaining Weight in the EM index Faster Than its O/P MSCI India vs EM (No of constituents)
330 MSCI India Relative to EM (US$ Index) (Rebased to 2014) 180 MSCI India Index MSCI EM Index - RS 1500
290 India weight Relative to EM (Rebased to 2014) 1400
160
No of Constituents 1300
250 140
1200
120 1100
210
100 1000
170 900
80
800
130 60 700

90 40 600

2016
1998

2000

2002

2004

2006

2008

2010

2012

2014

2018

2020

2022

2024
2024
2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2025
India’s Performance Relative to China India’s Weight in the Global Index
MSCI India Rel to MSCI China (Rebased to 1993) 2.2%
2000 MSCI India Weight in MSCI ACWI - RS
2.0%
1.8%
1500 1.6%
1.4%
1.2%
1000 1.0%
0.8%
0.6%
500
0.4%
0.2%
0 0.0%

1999

2009

2019
1993

1995

1997

2001

2003

2005

2007

2011

2013

2015

2017

2021

2023

2025
1995

2009

2011

2025
1993

1997

1999

2001

2003

2005

2007

2013

2015

2017

2019

2021

2023

Source: RIMES, MSCI, Morgan Stanley Research

Morgan Stanley Research 45

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-70%
-60%
-50%
-40%
-20%
-10%
0%

-30%

-80%
-70%
-60%
-50%
-40%
-30%
-10%

-90%
-20%
0%
2002 2003
2003 2004
2004 2005
2006
2005
Sentiment
2006 2007
2007 2008
2008 2009
2009 2010
2010 2011
2011 2012
2012 2013
2013 2014
2014 2015
2015 2016
Sensex Drawdown

Source: Bloomberg, RIMES, MSCI, Morgan Stanley Research.

Small-cap Drawdown
2016 2017
M

2017 2018
2018 2019
2019
Sensex Drawdown

2020

BSE Smallcap Drawdown

2020 2021
2021 2022
2022 2023
2023 2024
2024 2025
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%

100%

-20%
0%
60%
80%

20%
40%

Jan-16 2002
Jul-16 2003
2004
Jan-17
2005
Jul-17
2006
Jan-18 2007
Jul-18 2008
MSCI EM - USD

Jan-19 2009
2010
Jul-19
2011
Jan-20
2012
Jul-20 2013
MSCI India performance relative to

Jan-21 2014
Jul-21 2015
Mid-cap Drawdown

2016
Jan-22
2017
Jul-22
2018
India vs. EM Relative Performance

Jan-23 2019
Jul-23 2020
BSE Midcap Drawdown

Jan-24 2021
2022
Jul-24
2023
Jan-25
2024
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Sentiment
Equity Saving to Household Saving: A Secular Shift Household Savings vs. Wealth: The Great Indian Wealth Boom (US$bn)
Change in Change in
Savings at Mar- Wealth as on
Asset class Savings over % share Wealth over % share
24 Mar -24#
13% Equity Saving to Household Saving Prior Decade Prior Decade#

Physical 4409 9446 2731 55% 5730 67%

11%
Gold 610 2775 343 7% 1844 22%
9% Property+ 3799 6671 2388 48% 3887 45%

7%
Financial 3181 4057 2206 45% 2842 33%
5%
Currency 422 422 253 5% 253 3%
3% Deposits 1776 1776 1031 21% 1031 12%

Moving Average (5Y) Contractual savings 749 749 477 10% 477 6%
1%
Equities 234 1110 156 3% 964 11%
-1%

F2021
F1981
F1983
F1985
F1987
F1989
F1991
F1993
F1995
F1997
F1999
F2001
F2003
F2005
F2007
F2009
F2011
F2013
F2015
F2017
F2019

F2023
Total Assets 7590 13503 4937 8572

Equity vs. Gold: Gold Remains Bigger Household Assets to GDP

Equities Relative to Gold 4.5 Gross Household Wealth to GDP
60%
1.0 0.5 Net Household Wealth to GDP
Allocation of Saving Wealth - RS Share of Financial Wealth Relative to Physical Wealth in - RS
4.0 55%
0.8 0.4 3.5 50%
0.6
0.3 3.0 45%
0.4 2.5 40%
0.2
0.2 2.0 35%

0.0 0.1 1.5 30%

1.0 25%
-0.2 0.0

F2010
F1992
F1994
F1996
F1998
F2000
F2002
F2004
F2006
F2008

F2012
F2014
F2016
F2018
F2020
F2022
F2024
F2004

F2018
F1992
F1994
F1996
F1998
F2000
F2002

F2006
F2008
F2010
F2012
F2014
F2016

F2020
F2022
F2024

Source: RBI, Bloomberg, BSE, Morgan Stanley Research.

Morgan Stanley Research 47

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The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not
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.

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(as of May 31, 2025)
The Stock Ratings described below apply to Morgan Stanley's Fundamental Equity Research and do not apply to Debt Research produced by the Firm.
For disclosure purposes only (in accordance with FINRA requirements), we include the category headings of Buy, Hold, and Sell alongside our ratings of Overweight, Equal-weight, Not-Rated

48
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and Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy,
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Other Material Investment Services

Coverage Universe Investment Banking Clients (IBC)
Clients (MISC)

Stock Rating % of Rating % of Total Other

Count % of Total Count % of Total IBC Count
Category Category MISC

Overweight/Buy 1493 40% 379 46% 25% 698 41%

Equal-weight/Hold 1650 44% 372 45% 23% 782 46%

Not-Rated/Hold 4 0% 0 0% 0% 2 0%

Underweight/Sell 602 16% 74 9% 12% 235 14%

Total 3,749 825 1717

Data include common stock and ADRs currently assigned ratings. Investment Banking Clients are companies from whom Morgan Stanley received investment banking compensation in the
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