Forget defensives: Morgan Stanley is ‘Overweight’ on 3 sectors-Trent, Titan, 8 more in 2026 focus list

Morgan Stanley’s 2026 Outlook: In its latest strategy pivot titled “The Coming Upside Surprise,” suggests that the “pain trade” is finally ending. Morgan Stanley’s Ridham Desai predicts the Sensex hitting 95,000 by December 2026 in its base case, implying a 13% upmove from current levels.

For those tracking the best-case outcomes, Morgan Stanley’s “Bull Case” scenario sees the possibility of BSE  sprinting to 1,07,000, implying as much as 26% upside potential,  if global conditions remain benign and domestic reforms accelerate.

The macro “Gift”: Why the cycle is turning

The report argues that the hawkish macro setup that followed the pandemic is now unwinding. This isn’t just a story of picking individual stocks; it is a “macro trade.” Morgan Stanley points to the policy pivot by the RBI and the government, including nearly Rs 1.5 trillion in GST rate cuts designed to boost mass consumption.

According to the brokerage house, for the first time in five years, equity valuations look favourable relative to short-term interest rates. With the rupee appearing undervalued and nominal growth rising relative to nominal rates, the brokerage sees a classic template for strong equity returns.

The “Supercharge” list: Morgan Stanley ‘Overweight’ on 3 high-growth sectors 

Morgan Stanley has shifted its weight heavily toward Domestic Cyclicals. These are the areas where the firm believes the biggest wealth will be created as internal demand picks up.

1. Consumer Discretionary (Overweight by 300 bps)

The firm expects a boost in urban consumption and mass-market demand, aided by the significant GST reductions that specifically target items consumed by the broader population. Morgan Stanley believes that as household budgets find relief from lower taxes and falling interest rates, spending on lifestyle and vehicles will see a sharp recovery.

Company in Focus

• Maruti Suzuki (Theme: Passenger Vehicle recovery)
• Trent (Theme: Urban consumption and retail growth)
• Titan (Theme: Luxury and discretionary spending)
• Varun Beverages (Theme: Mass-market consumption)

2. Industrials (Overweight by 300 bps)

With the government front-loading capital expenditure (Capex) and private companies starting to invest in new capacity, this sector is a top pick. The report highlights that the “front-loading” of government projects is acting as a catalyst for the private sector to finally begin its own investment cycle. This creates a multi-year visibility for order books in the infrastructure and construction space.

Company in Focus

• Larsen & Toubro (L&T) (Theme: Infrastructure and Capex recovery)
• UltraTech Cement (Theme: Construction and infrastructure build-out)

3. Financials (Overweight by 200 bps)

The analysts see a “sweet spot” for lenders due to bank deregulation, rising credit demand from SMEs, and low credit costs. Morgan Stanley points out that while the market has been worried about margins, the acceleration in credit growth and the RBI’s shift toward a more accommodative stance will benefit large-cap banks and nimble non-banking financial companies.

Company in focus

• ICICI Bank (Theme: Asset quality and private investment)
• Bajaj Finance (Theme: Strong credit demand)

Morgan Stanley’s 2026 focus list

The firm has curated a high-conviction list of stocks to lead this recovery. The targets below represent the 12-month base case projections as of January 2026.

The “Danger Zone”: Morgan Stanley ‘Underweight’ on 4 sectors

While the overall market looks positive, Morgan Stanley lays out the sector that it believes should be avoided. The firm is ‘Underweight’ on these four sectors as they are less aligned with the domestic recovery:

1. Materials (Underweight by 300 bps): The firm expects this sector to struggle with global commodity headwinds and a lack of domestic pricing power compared to finished goods.
2. Energy (Underweight by 200 bps): Global supply dynamics and the transition in energy usage make this a laggard in a portfolio focused on rapid domestic growth.
3. Healthcare (Underweight by 200 bps): Viewed as a defensive play that will likely underperform as capital moves toward high-beta growth sectors.
4. Utilities (Underweight by 100 bps): These stocks lack the explosive growth triggers found in the cyclical sectors and are seen as “bond proxies” that may lose favour in a surging equity market.

The FPI “Pain Trade”: Morgan Stanley expects buying

A critical finding in the report is the historically low positioning of Foreign Portfolio Investors (FPIs). Morgan Stanley notes that FPI ownership has weakened significantly over the past four years. As India’s relative performance begins to beat global peers again, the firm believes these investors will be forced to buy back into the market at higher prices to avoid lagging behind their benchmarks a scenario they describe as a “pain trade” that could provide the technical fuel to push the Sensex toward the 1,00,000 mark.

Morgan Stanley: Worst over for India

Morgan Stanley’s analysis suggests the worst is over for Indian equities. “India’s relative performance has already turned,” the report concludes, citing a 17% projected earnings growth for the Sensex through FY28. Its stance seems like it is suggesting to move away from defensives and position wealth in the domestic cyclicals ready to ride the wave.

Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.