The Indian stock market has delivered little meaningful return over the past two years, but global brokerage Morgan Stanley believes the benchmark BSE Sensex has a 25% probability of reaching the 1,00,000 mark over the next 12 months under its bullish scenario.
In a report, Morgan Stanley’s India equity strategist Ridham Desai outlined three possible outcomes for the market over the coming year, assigning a 25% probability to its bull case, a 50% probability to its base case, and a 25% probability to its bear case.
Bull case: Sensex at 1,00,000
Under its bullish scenario, Morgan Stanley expects the Sensex to climb to 1,00,000, supported by Brent crude oil prices remaining below $80 per barrel, improving India’s terms of trade, and reflationary policies translating into stronger economic growth.
The brokerage also assumes Sensex earnings will compound at an annual rate of 19% during FY26-FY29 in this scenario.
Base case: Sensex target of 89,000
Morgan Stanley assigns a 50% probability to its base case, with the Sensex reaching 89,000 over the next 12 months.
The projection is based on continued macroeconomic stability, a sustained pickup in private sector investment, and a favourable gap between real economic growth and real interest rates. The brokerage expects Sensex earnings to grow at a compounded annual rate of 16% through FY2029.
“The Sensex target of 89,000 suggests that the Sensex would command a trailing P/E multiple of 23.5x, ahead of the 25-year average of 22x,” Desai said.
According to the report, the premium valuation reflects stronger confidence in India’s medium-term growth outlook, the market’s relatively lower beta, a higher terminal growth rate, and a predictable policy environment.
Bear case: Sensex at 66,000
In its downside scenario, to which it assigns a 25% probability, Morgan Stanley expects the Sensex to decline to 66,000 over the next year.
What could trigger the next market rally?
Morgan Stanley believes the key catalyst for the Indian stock market will be how investors assess India’s growth differential relative to the global economy.
According to the brokerage, this perception could improve if global sentiment around artificial intelligence (AI) capital expenditure weakens or if India’s economic growth accelerates.
“The coming quarterly earnings season should therefore offer useful signals, and we expect an upside surprise given strong high-frequency indicators,” the report said.
Morgan Stanley also believes India is undergoing structural reforms that could significantly liberalise the framework for foreign portfolio investment (FPI) inflows. A healthy pipeline of initial public offerings (IPOs) could provide additional support to the market, provided issuance does not become excessive.
The brokerage expects India’s investment-to-GDP ratio to rise to 37.5% over the next five years. It also highlighted supportive macroeconomic conditions, including an undervalued currency, moderate real interest rates and fiscal stability.
“For equity investors, the mix is compelling: broad-based growth acceleration, robust domestic equity flows, a nascent IPO pipeline, the weakest-ever trailing 12-month relative performance, relative valuations at all-time lows and foreign positioning at multi-year lows,” the report said.
Portfolio positioning
Morgan Stanley continues to prefer domestic cyclicals over defensive and externally oriented sectors.
The brokerage remains overweight on Financials, Consumer Discretionary, Industrials and Information Technology, while maintaining an underweight stance on Energy, Materials, Utilities and Healthcare.
It also believes IT services may prove the dark horse as the world turns to these firms to build AI applications and solutions.
At the same time, Morgan Stanley cautioned that India’s key risks remain largely external, including geopolitical tensions and a slowdown in the global economy. On the domestic front, it identified weak agricultural productivity, judicial capacity constraints and the potential impact of embodied AI on labour markets as important long-term risks.
Disclaimer: 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.
