The year 2026 could be an exciting year for the Indian stock market because of strong macro, healthy earnings growth, and comfortable valuations, according to Ridham Desai, Managing Director at Morgan Stanley India.
Interacting at the 23rd edition of the Hindustan Times Leadership Summit, Desai underscored that the past 12 months have been difficult for the domestic market, even as the global stock market enjoyed a strong bull run.
India’s underperformance over the last 12 months was primarily due to a mid-cycle growth slowdown beginning last September, high relative valuations versus emerging markets, and global AI trade.
All this is turning now, Desai noted.
“Growth has already begun to turn. Valuations of the Indian stock market have also corrected meaningfully. Much of the global AI trade seems priced in, and at the margin, it should now attract less capital. That means less of a headwind for India,” said Desai.
Desai expects nominal growth, a critical factor that determines earnings growth, to enter double digits in 2026, driving a strong earnings recovery.
“India may well become the world’s fastest-growing earnings market,” said Desai.
AI-play: Not in bubble territory
Discussing the growing chatter about a bubble in AI, Desai said he does not yet see a bubble.
“With respect to the AI and so-called bubble, I’m not an expert on this, but I don’t see this as a bubble as yet. Everybody is warning us it’s a bubble. Just going by my experience with markets spanning 35 years, when everybody’s calling it a bubble, it usually has more legs to go than we all think,” said Desai.
He, however, added that if AI gets into a bubble and it crashes, it will pull down stock prices everywhere in the world.
India may still outperform handsomely since it is a low beta market, but it’ll be hard to contain the downside in absolute terms. In that situation, the Nifty 50 will probably head towards a bear case rather than towards a base level case, said Desai.
Global growth slowdown a key risk
Desai believes the biggest risk for equity markets is a slowdown in global growth. The major economies of the world, including the US, Europe, Japan, and China, have seen unprecedented stimulus to counter the impact of US tariffs, so the downside to global growth appears limited.
However, a failure of this global policy support, either because the stimulus is insufficient or due to an unforeseen global shock such as war, will be the biggest risk for India, said Desai.
Discussing US tariffs on Indian goods, Desai stated that the goods affected by these tariffs constitute approximately 1.2% of India’s GDP. Even if fully impacted, the drag would be 30–40 basis points, which is not catastrophic. But removing the overhang would help sentiment.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
