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Investing.com -- Indian equities are set for a rebound in 2025, with growth expected to recover and valuations at their most attractive levels since the COVID-19 pandemic, Morgan Stanley (NYSE:MS) said in a research report.

The brokerage forecasts India’s GDP growth at 6.3% for the fiscal year 2025 and 6.5% for 2026, citing an improvement in high-frequency economic indicators and support from fiscal and monetary policy. It expects a recovery in service exports to further aid economic expansion.

India’s long-term economic fundamentals remain strong, driven by population growth, a stable political environment, improving infrastructure, and a rising entrepreneurial class, brokerage said. These factors could position India as a leading consumer market and boost its manufacturing share in GDP.

Morgan Stanley noted that despite improving fundamentals, Indian stocks have lagged behind their global peers. However, the firm expects the market to regain lost ground, pointing to an anticipated recovery in corporate earnings.

India’s relative earnings growth is turning positive, even based on conservative estimates. Meanwhile, stock valuations are at their most appealing levels in years, it added.

The firm believes that recent market trends favor selective stock-picking over broad-based investment strategies. It recommends overweight positions in financials, consumer discretionary, industrials, and technology, while remaining underweight in other sectors.

The report said that cyclical stocks and mid- to small-cap companies are likely to outperform larger, defensive stocks

Among key drivers, Morgan Stanley highlighted the Reserve Bank of India’s recent policy pivot, a growth-oriented government budget, and steady domestic investor participation.

Risks to the outlook include external factors such as global trade policies, the strength of the U.S. dollar, and overall financial conditions.

India’s low correlation with global markets and strong domestic investment base make it a relatively safe bet in an uncertain macroeconomic environment.

This content was originally published on http://Investing.com