Strategists at Morgan Stanley see a 30% probability of the Sensex hitting 107,000 points by December 2026 — a 27% rise — if a bull market prevails in the next year. Even in the base case, which has a 50% probability, it predicts the Sensex to rise by 13% to 95,000, the brokerage said in a report on Tuesday. It noted that this follows Indian equities’ worst underperformance in three decades in 2025.
The base case prediction for Sensex assumes a continuation in India’s gains in macro stability via fiscal consolidation, increased private investment, and a positive gap between real growth and real rates. In a bull case scenario, it said that if oil prices are persistently below $65/barrel, resulting in better terms of trade, reflation policies start to achieve success and result in higher growth estimates, and the global trade war is curtailed by reversals in positions on tariffs, leading to improved growth prospects.
“Robust domestic growth, steady global growth, and benign oil prices are also part of our assumptions,” wrote Ridham Desai and Nayant Parekh in the report, adding that they are also anticipating a resolution to the tariff situation between India and the US in the weeks ahead.
The Morgan Stanley report comes 10 days after Goldman Sachs gave a prediction of 29,000 for the Nifty by the end of 2026. “Indian equities have had a lackluster year… This is in sharp contrast to the broader emerging markets that have seen one of the strongest years in the past eight years,” the report said.
The Morgan Stanley report pointed out that the growth slowdown that started in the second half of 2024 and rich relative valuations appear to be the fundamental drivers of India’s underperformance. “That India does not offer explicit AI-related trades is another reason. The delay in the US trade deal has also contributed to volatility. And India’s low beta does not help in a global equity bull market,” the report stated.
However, the biggest risk for India is that global growth slows down from its current forecasts. “India could easily outperform a global selloff given its low beta, but such a selloff would likely impede absolute upside in Indian stocks,” it said.
While market participants appear to worry about the expanding issuance pipeline, a threat to domestic flows in view of poor trailing equity returns, elevated absolute valuations, and growth uncertainty. Morgan Stanley prefers domestic cyclicals over defensives and external-facing sectors and is overweight financials, consumer discretionary, and industrials, underweight energy, materials, utilities, and healthcare. “The market is transitioning into one that will be driven by macro factors (stock-picking loses importance). We are capitalisation agnostic,” the report added.
The strategists believe that the earnings cycle is about midway through its journey and the key macro drivers of earnings will be an emerging private capex cycle, the releveraging of corporate balance sheets, a robust banking system, improving terms of trade – via both a higher share in global trade and a lower share of oil in GDP – and the unfolding of a structural rise in discretionary consumption.