Sensex can hit 1 lakh in a year in bull case, says Morgan Stanley; prefers domestic cyclicals over defensives
The recent correction of the Indian stock market from the September 2024 highs presents a compelling opportunity to invest in India's long-term growth story, according to global brokerage Morgan Stanley. While the firm has revised its base case Sensex target for June 2026, it also predicts the index reaching the 1,00,000 mark under its bull case scenario.
In its latest outlook, Morgan Stanley has set Sensex base case target of 89,000 by June 2026, reflecting an 8% upside from current levels. However, under its bull case scenario — which it assigns a 30% probability — the brokerage projects that the Sensex could touch 1 lakh as early as June 2026.
'Our new Sensex June 2026 target of 89,000 (8% upside) bakes in our new earnings estimates and is also rolled forward from the December 2025 target of 82,000,' said Ridham Desai and Nayant Parekh, Equity Strategists at Morgan Stanley.
This level suggests that the BSE Sensex would trade at a trailing P/E multiple of 23.5x, ahead of the 25-year average of 21x. 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 Morgan Stanley report said.
In the base case scenario, where Morgan Stanley sees a 50% likelihood, the brokerage anticipates that the Sensex will reach 89,000 by June 2026.
This assumes sustained improvements in India's macroeconomic stability through fiscal consolidation, rising private sector investment, and a positive real growth-real interest rate gap. A stable domestic growth outlook, absence of a US recession, and moderate oil prices are also factored into the forecast.
The base case also assumes progress on a favourable India-US trade deal, a 50 basis point cut in short-term interest rates, and an overall positive liquidity environment. Under this scenario, Sensex earnings are expected to grow at a CAGR of 16.8% through FY28.
In the bull case, Morgan Stanley envisions a more favourable macro and policy environment, leading to Sensex reaching 1,00,000 by June 2026.
Key assumptions include crude oil prices remaining consistently below $65 per barrel, allowing for further monetary easing by the RBI, and a resolution of global trade tensions through reversals in tariff policies. Additionally, unexpected policy reforms—such as GST rate cuts and progress on agricultural reforms—could provide further tailwinds.
In this scenario, earnings growth is projected to accelerate to 19% annually over FY25–28.
Morgan Stanley assigns a 20% probability to its bear case, in which the Sensex drops to 70,000 by June 2026.
This scenario assumes a sharp rise in crude oil prices above $100 per barrel, leading to monetary tightening by the RBI to maintain macroeconomic stability. It also factors in a significant global growth slowdown, including a recession in the US. Under these conditions, earnings growth is expected to moderate to 15% annually through FY28, with a noticeable deceleration in FY26. Equity valuations are also likely to compress in response to deteriorating macro fundamentals.
Morgan Stanley maintains a strategic preference for domestic cyclicals over defensives and external-facing sectors, reflecting its confidence in India's resilient domestic growth narrative. The brokerage is overweight on Financials, Consumer Discretionary, and Industrials, while maintaining an underweight stance on Energy, Materials, Utilities, and Healthcare.
The report highlights that the current environment is likely to be a 'stock pickers' market', diverging from the macro-driven rallies observed since the onset of the Covid-19 pandemic. Consequently, the firm's average active sector position is limited to just 80 basis points, underscoring a more selective, bottom-up investment approach.
Importantly, Morgan Stanley remains 'capitalization-agnostic', suggesting flexibility in identifying opportunities across large-, mid-, and small-cap segments.
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.
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