Global investors continue favoring Indian equities as Morgan Stanley's latest research reaffirms the nation's EM leadership position. The Wall Street firm projects the BSE Sensex could deliver 14% returns through December 2025 under baseline assumptions.

Three pillars support this optimistic projection: 1) Corporate earnings expanding at 18-20% CAGR, 2) Macroeconomic stability through inflation targeting, and 3) Uninterrupted domestic capital flows creating valuation support.

"India's reduced correlation with broader EM volatility (beta 0.4) reflects maturing market characteristics," analysts noted. This decoupling stems from favorable trade dynamics, steady FDI inflows, and prudent fiscal management.

The research highlights India's unique position entering a multi-year capex cycle. Corporate balance sheet repairs combined with rising consumer spending power create ideal conditions for compounding returns. Private sector investment should accelerate across manufacturing, infrastructure and technology sectors.

Morgan Stanley's sector preferences reflect this growth thesis. Financial services, consumer discretionary and industrial stocks receive overweight ratings, while selective technology exposure complements the cyclical tilt. The firm particularly favors small/mid-cap names leveraged to domestic consumption.

Key assumptions underpinning the forecast include stable crude prices around $80/bbl, moderate interest rate cuts by the RBI, and continued fiscal discipline. Under this scenario, Sensex earnings could compound at 17.3% annually through FY2027 - 15% above consensus estimates.

The analysis suggests India's market maturation since COVID has created stock-specific opportunities rather than macro-driven moves. Bottom-up selection becomes crucial as sector rotations intensify amid global uncertainty.

While acknowledging near-term challenges like election volatility and global risk sentiment, Morgan Stanley maintains India's structural advantages outweigh cyclical concerns. The nation's demographic dividend, digital transformation and manufacturing ambitions continue attracting long-term capital.