Indian markets likely to rise in Q3 FY26: Morgan Stanley

Indian markets likely to rise in Q3 FY26: Morgan Stanley

Indian stock markets are more likely to rise than fall in the third quarter of the financial year 2026 (Q3 FY26), global brokerage Morgan Stanley said in a note on Friday.

The firm remains bullish on Indian equities, expecting strong economic data, supportive measures from the Reserve Bank of India (RBI), and better-than-expected corporate earnings to drive market gains from July onwards.

According to Morgan Stanley, India is showing signs of steady improvement. Government spending is increasing, and the RBI appears to be shifting towards a more accommodative or ‘dovish’ policy stance. This, along with easing inflation, is creating a favourable environment for equities.

The brokerage also believes that lower interest rates will encourage banks to increase lending, thereby boosting credit growth. Furthermore, if global uncertainties ease, Indian companies may begin to invest more in new projects.

A key driver for the markets could be the upcoming corporate earnings season. Morgan Stanley expects many companies to exceed market expectations, supported by a lower base, improved operational efficiency, and steady consumer demand.

Looking ahead, the RBI may cut interest rates by 25 basis points in the fourth quarter, which could further improve market sentiment.

However, the brokerage cautioned that global factors continue to exert a significant influence on India’s markets. Rising geopolitical tensions, shifts in global trade policies, or a slowdown in developed economies could negatively impact domestic equities.

Although India is generally viewed as a stable market, a broad-based global sell-off would likely have a spillover effect on Indian stocks. For instance, a sharp fall in crude oil prices could signal deeper global economic concerns, which may weigh on investor confidence.

Despite these risks, Morgan Stanley believes that strong retail investor participation and sustained foreign institutional interest will provide a cushion against potential downside.

Indian equities also benefit from a ‘scarcity premium’ and ongoing structural reforms such as the Goods and Services Tax (GST) overhaul and infrastructure development, which continue to bolster investor confidence.

While current valuations are high relative to historical averages, the brokerage considers them justified in light of the strong earnings outlook.

In the long term, India’s stable policy environment and robust growth potential make it one of the most attractive investment destinations among emerging markets, Morgan Stanley said.