Morgan Stanley’s Ridham Desai, in the latest note, said that the Indian stock market looks poised for a strong upmove in the coming months, even as pessimism prevails currently due to the ongoing geopolitical conflict in the Middle East. A confluence of weak trailing performance, valuations, positioning and earnings is behind Morgan Stanley’s bullish view.
Against this backdrop, it projects Sensex target for 2026 at the 95,000 level in its base-case scenario, signalling a near 24% upside from current levels. The index closed at 76,631 on April 9.
What’s behind Morgan Stanley’s bullish view?
Morgan Stanley said, in a report dated April 8, that the Indian stock market‘s 12-month trailing performance is the worst in history, and relative valuations are at previous troughs.
According to the brokerage’s estimates, Sensex is nearly the cheapest ever in gold terms. At the same time, FPI positioning has weakened significantly even though the earnings upcycle has resumed, except for some temporary weakness in March due to geopolitical tensions. Interestingly, Indian companies are generating a larger share of profits compared to their weight in the index.
On the policy front, the RBI has turned the sentiment on the rupee, which remains undervalued, while policy momentum looks strong too, and the domestic bid has withstood a major market drawdown.
Sensex base-case scenario
The base-case scenario for Sensex, which projects a year-end target of 95,000 with a 50% possibility, suggests that it would command a trailing P/E multiple of 23.5x, ahead of the 25-year average of 22x.
The premium over the historical average reflects “greater confidence in the medium-term growth cycle in India, India’s lower beta, a higher terminal growth rate and a predictable policy environment.”
The scenario assumes continuation in India’s gains in macro stability via fiscal consolidation, increased private investment, and a positive gap between real growth and real rates. It assumes robust domestic growth, steady global growth and benign oil prices, along with a positive liquidity environment as the base case for monetary policy.
“We do not anticipate a bunching of issuances, and the retail bid keeps its nose ahead of the supply. Sensex earnings compound at 17% annually through F2028,” it added.
Sensex bull & bear-case scenarios
Meanwhile, in its bull case scenario, Morgan Stanley projects Sensex year-end target at 107,000, with a 30% likelihood of playing out. In addition to the above conditions, oil below $70/bbl is a key assumption, along with a higher earnings growth estimate of 19% annually over F2025-28.
On the flip side, in case oil prices average over $100 in the coming months, triggering central bank tightening, a slowdown in global growth and a possible US recession, Sensex could end the year at 76,000. This scenario has a 20% possibility.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
