Sensex can hit 1 lakh in a year in bull case, says Morgan Stanley; prefers domestic cyclicals over defensives
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.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Mint
8 minutes ago
- Mint
Nifty Pharma index rises 1.9%: Alkem, Zydus among key gainers: Should you buy or sell pharma stocks?
Stock Market Today: The Nifty Pharma index gained 1.9% during the intraday trades on Wednesday. Alkem and Zydus stood among key gainers that led the rally The Nifty Pharma Index gained almost 2% during the intraday trade on Wednesday amid a relief rally in the Indian stock market. The Nifty Pharma Index opened at 21,803.45 levels, higher than the previous day's closing price of 21,753.50. It continued to gain further to an intraday high of 22,171.05, which meant gains of almost 2% over the previous day's close. Alkem Laboratories, Zydus Lifesciences, Laurus Labs, and Abbott India were among the key gainers that led to the rise in the Nifty Pharma pack. The US market remains critical for many Indian pharma companies. Sun Pharmaceuticals, Lupin , Dr. Reddy's, Aurobindo, Cipla, and many more derive a significant part of revenues from the US markets. Thus the danger of a 50% tax on pharmaceuticals looms, and this clearly poses a risk to the profitability of Indian pharmaceutical businesses, which rely on the US market for 30-50% of their sales. Most of these US revenues, however, come from the generic drug segment. Silver lining The silver lining remains as India remains cost-competitive compared to both the US and global peers, which should help mitigate some risks, said Ajit Banerjee, president and chief investment officer at Shriram Life Insurance. The domestic Indian pharma market (50% of the Indian pharmaceutical market) will remain unaffected by tariffs. Within the US, the impact on the generic formulations market is still uncertain, though Indian players already operate on thin margins. Tariffs could increase the drug shortages by eliminating competition in a market where pricing pressures are already intense, which could be a positive for Indian companies over the mid- to long-term, highlighted Banerjee While the recent executive order by the US Administration excludes the pharmaceutical sector from immediate tariff imposition. Any tariff action will depend on the outcome of the ongoing investigation under Section 232 of the Trade Expansion Act of 1962. Even if the India pharma tariff question is answered, Kotak Institutional expect the uncertainty to persist around whether the anticipated pharma tariffs (post the Section 232 investigation) would add to the country-specific one, definition of pharma/pharma products and then eventually how much of the tariffs are passed on and rolled back Bannerjee believes the US can either bring manufacturing back home or reduce drug prices, but not both simultaneously. Even before tariffs are finalized, the uncertainty can lead to delays in order commitments and impact sector sentiment and stock price thereby. The sector currently trades at a 1Y forward P/E of 29.7 times, above its 10-year average of 26.7x. We see tariff-induced volatility as a chance for investors to accumulate quality pharma stocks on dips, said Banerjee. Nifty Pharma has witnessed two weeks of selling pressure, especially after the recent U.S. tariff developments, as per analysts. The Pharma Index was trading near a support level on the daily time frame, where a pause in the decline was expected in the coming days, potentially leading the index towards 21,998. The outlook remains negative as long as the index fails to sustain above 22,380. On the downside, a break below 21,240 could push the index further towards the 20,380–20,140 zone, as per Kunal Kamble, Sr. Technical Research Analyst at Bonanza * Disclaimer: The views and recommendations above are those of individual analysts or brokerage companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
Mint
8 minutes ago
- Mint
Bulls ride high on India stocks, expecting success of US-Russia talks on Ukraine
Bulls appeared to be taking charge of the stock markets on Wednesday, ahead of the Trump-Putin talks, where a breakthrough or an impasse could significantly impact Indian equities. The two leaders are slated to meet in Alaska on Friday in a bid to end the over-three year Ukraine war. A day after foreign portfolio investors trimmed their index future longs to 7.95%, only 20 basis points shy of the record low of 7.75% on 22 March 2023, in light of the US Fed rate tightening cycle, bulls sold huge quantities of put options between the 24,500 and 24,600 levels, expecting a rally in the markets ahead of the talks. The contracts expire tomorrow. The Nifty 50 traded 0.6% higher at 24,634 at 1 pm. Amid likely domestic institutional investor buying in the cash market, bulls sold a massive number of puts at 24,600 – the open position at this strike rose by a whopping 227,758 contracts to a total 284,785 contracts. At 24,550, the open or outstanding positions jumped 148,077 contracts to 193,635 contracts and at 24,500 by 152,528 contracts to 260,034 contracts. The jump in open positions at these levels indicates that bulls expect the markets to close at or above 24,600, which will enable them to pocket the premium paid by the put buyers, who expect the markets to correct. "The correction premise (of put buyers) is based on the talks stalling and a continuation of the war, which could impact countries like India that buy Russian oil and have been slapped with a proposed punitive tariff of 25% from 27 August," explained SK Joshi, a consultant with Khambatta Securities. Other analysts cautioned that it was too early to take such calls because the Indian markets would react to the outcome of the talks only on Monday, with Friday a holiday for Independence Day. "The market is likely to consolidate in a 24,400-24,700 range ahead of the Russia-US talks in Alaska," said Sahaj Agrawal, head of derivatives research at Kotak Securities. "The reaction to the outcome will be on Monday." Options data and sentiment for now also suggest a sideways movement, with no major horizon shift on the cards, he added. The put-call ratio of the weekly options expiring on Thursday stood at 0.99 intraday, which means that for every 100 calls sold, traders had sold 99 puts. On Tuesday, the ratio stood at 0.65, or only 65 puts sold for 100 calls sold. Time correction The benchmark Nifty 50 has been in a time correction for 11 months now, which is longer than the nine-month time correction that followed the outbreak of the covid pandemic in 2020. Time correction implies an extended period of stagnant to marginally lower price movement. The Nifty has fallen 6.25% from a record high of 26,277.35 on 27 September last year to Wednesday's intraday level of 24,634. While the Nasdaq, the UK's FTSE and Japan's Nikkei trade at record highs, Indian stock indices haven't been able to reclaim their previous high even 11 months later. In the last major down-cycle, the Nifty fell 40% from a high of 12,430 on 20 January 2020 to 7,511.10 on 24 March that year when the pandemic surfaced. However, it reclaimed the high in nine months, closing at 12,632 by 9 November. The current time correction is due to tepid earnings growth and more lately because of Trump's crushing tariffs on India, which Moody's expects could trim its current fiscal growth estimate by 30 bps to 6%. "We have been in a time correction for nearly 11 months now and will have to see how the geopolitical events play out to reckon whether we will break through the 26,277.35 record high of last September or test the multi-month low of 21,743.65 of this April," Kotak Securities' Agrawal added.
Mint
8 minutes ago
- Mint
Should Indian stock market investors be worried about the IPO boom? Explained
The Indian primary market is on fire. 2025 has already seen a record number of filings, blockbuster listings, and frenzied investor interest across both mainboard and SME initial public offerings (IPOs). Not only have they caught retail investor interest, but the IPO euphoria is also visible in the investment trends of the institutional investors. Till July 2025, 163 public offerings have hit the market, looking to raise ₹ 67,000 crore, according to Prime Database. In August, too, there is no slowdown in the number of offerings, with many big names like JSW Cement, having accessed the IPO market and a few more lined up. G Chokkalingam, Founder, Equinomics Research, explained that the lure of strong listing gains, higher allocation by institutions and retail investors, along with a greater share of offerings from sectors not impacted by the US tariffs, is powering the IPO boom. However, as IPO-bound companies soak up massive capital inflows, especially from FPIs and mutual funds, questions are emerging: Is this IPO boom weighing down the broader market? Are the bulls in the secondary market being kept in check? And what are its implications for the Indian stock market? According to analysts, while IPOs are siphoning liquidity away from the secondary market, the primary market boom is an important feature and a necessary development. Chokkalingam said that a robust IPO market is certainly contributing to the weakness we are seeing in the secondary market. Liquidity at any point in time is limited, he explained, adding that the IPO market competes with the liquidity that would otherwise chase the secondary market and is one of the reasons pressuring the stock market bulls. There has been a record IPO filing in both the mainboard and SME segments, along with bearish flows by FPIs in the secondary markets. FPIs have preferred the IPO market over the secondary market in 2025 as they have pulled out around $17.4 billion from listed equities and invested $4.37 billion in the primary market. The mutual fund industry also demonstrated strong participation in newly-listed companies during the quarter ended June 2025, with total investments exceeding ₹ 5,294 crore across recent IPOs. Vaqarjaved Khan, CFA, Sr. Fundamental Analyst, Angel One, said a strong IPO pipeline can pressurise secondary markets as liquidity diversion for marquee investors tends to happen as they often sell existing holdings to raise cash for attractively priced IPOs. This is more pronounced when IPOs are bunched together and large in size, and the investment window is small, Khan said. There tends to be a valuation reset as well if companies in the primary market are better priced than their listed counterparts, said Khan. This, he believes, results in de-rating in the secondary markets. Sharing a contrasting view, Harshal Dasani, Business Head at INVasset, said that while short-term market momentum may face occasional pressure, in the long run, a steady flow of quality listings strengthens market breadth, price discovery, and overall stability. "With SIP inflows exceeding ₹ 28,000 crore a month and mutual fund AUM at record highs, India is awash with investable capital. If fresh supply through listings dries up, this relentless flow would be forced into a limited set of existing stocks, inflating valuations and creating bubble-like conditions," he added. This isn't the first time India's markets have danced to this tune. 'Over the last 30 years, we've repeatedly seen a pattern: first a secondary market boom, followed by an IPO boom, and then a correction,' said Chokkalingam. According to Chokkalingam, the eventual correction — often prolonged — begins once liquidity tightens and valuations lose support. 'Corrections usually last six months to three years. What brings the market back is time, bottom-fishing, improving valuations, and fresh inflows.' However, what can eventually pull the Indian stock market bulls out of slumber is the resolution of the US-India trade deal and any rate cuts by the US Federal Reserve. "On the domestic front, SIP and domestic flows continue to remain strong. Strong quarterly results from heavyweight sectors, coupled with higher liquidity, will then boost Indian equities and take it out of consolidation," Khan said. Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
