Morgan Stanley’s Ridham Desai eyes 19% Sensex upside, calls IT the ‘Dark Horse’ 

Morgan Stanley also set a June 2027 Sensex target of 89,000, implying 19% upside from current levels. Against that backdrop, Morgan Stanley continued to favour domestic cyclicals, remained ‘Overweight’ on Financials, Consumer Discretionary and Industrials.

The brokerage said India’s long-term investment case remains intact despite concerns around artificial intelligence disruption and global uncertainties. According to Morgan Stanley, strong domestic equity flows, a recovering earnings cycle, rising capital expenditure and supportive macroeconomic conditions create a compelling backdrop for Indian equities over the coming year.

Morgan Stanley says India’s earnings cycle is turning higher again

Morgan Stanley said India is once again entering an earnings upcycle after a period of moderation.

The brokerage said earnings growth acceleration could persist for several quarters, supported by a broad-based capital expenditure cycle spanning energy, defence, semiconductors, fertilisers and data centres. Morgan Stanley expects investments as a share of gross domestic product to rise to 37.5% over the next five years.

The report also pointed to supportive policy conditions, including an undervalued currency, modest real interest rates and fiscal stability.

Explaining its broader market view, Morgan Stanley said, “We think India earnings are once again in the throes of an upcycle. The earnings growth acceleration could last several quarters beyond these near-term hurdles, given our strong view on capital spending across numerous sectors, including Energy, Defence, Semiconductors, fertilisers and data centres.”

Morgan Stanley said prolonged tensions in the Middle East and the risk of a severe drought remain the key near-term risks to this outlook.

Ridham Desai says India’s long-term story remains intact

While concerns around artificial intelligence and global trade continue to dominate market discussions, Morgan Stanley said India’s structural growth story remains firmly in place.

The brokerage acknowledged that the lack of a direct artificial intelligence investment theme has weighed on sentiment. It also noted concerns that artificial intelligence could eventually disrupt parts of India’s services export industry.

Even so, Morgan Stanley said India remains well placed to benefit from changes in the global economy.

Discussing the long-term outlook, Morgan Stanley said, “Beyond these challenges, we expect India to be a big gainer in a multi-polar world, with manufacturing share in GDP likely to rise in the coming decade. India’s key leverage is its growing consumer base, with rising incomes of a relatively young population.”

The brokerage noted that India accounted for 18% of global gross domestic product growth in 2025 and said that share could increase further in the coming years.

Morgan Stanley also said India is among the fastest-growing destinations for energy infrastructure investment, a trend that could support future growth in data centres.

Why Morgan Stanley says IT could emerge as the ‘dark horse’

One of the most notable observations in the report relates to the technology sector.

While Morgan Stanley maintained an ‘equal-weight’ view on Technology within its model portfolio, the brokerage suggested that the market may be underestimating the opportunities artificial intelligence could create for Indian information technology services companies.

The report said the ongoing artificial intelligence debate has weighed on sector valuations. However, Morgan Stanley does not believe earnings face immediate pressure from these concerns.

Instead, the brokerage sees a scenario where demand for artificial intelligence-related implementation and development work could create fresh opportunities.

Morgan Stanley said, “IT services could be the dark horse as the world pivots to these companies to build AI applications and solutions.”

The brokerage added that while weaker growth in the United States remains a risk for the sector, concerns around artificial intelligence may be affecting valuations more than earnings at this stage.

Morgan Stanley favours domestic cyclicals over defensives

Morgan Stanley said its preferred positioning remains tilted towards domestic cyclical sectors rather than defensive or externally linked businesses.

The brokerage maintained overweight positions in Financials, Consumer Discretionary and Industrials.

For Consumer Discretionary, Morgan Stanley expects consumption growth to benefit from lower interest rates, the impact of tax reductions and improving income growth.

On Industrials, the brokerage said a pickup in private capital expenditure remains a key driver. Morgan Stanley identified energy, mining, defence, fertilisers, semiconductors and data centres as important sources of future investment demand.

Discussing Financials, Morgan Stanley said net interest margins are nearing a trough while strong credit growth and benign credit costs support the outlook for earnings growth.

At the same time, Morgan Stanley remained underweight on Energy, Healthcare, Utilities and Materials.

The brokerage said, “Portfolio positioning: Domestic Cyclicals > Defensives and External-facing sectors; overweight Financials, Consumer Discretionary and Industrials; underweight Energy, Materials, Utilities and Healthcare.”

Morgan Stanley sees 19% upside for the Sensex

Morgan Stanley set a base-case target of 89,000 for the BSE Sensex by June 2027, implying upside potential of 19% from the level prevailing when the report was published.

The brokerage assigned a 50% probability to this outcome and said it assumes continued macroeconomic stability, increased private investment, robust domestic growth and lower oil prices than current levels.

Morgan Stanley also expects Sensex earnings to compound at 16% annually through FY2029 under its base-case scenario.

Explaining the target, Morgan Stanley said, “Our BSE Sensex target of 89,000 implies upside potential of 19% through June 2027. 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 brokerage’s bull-case scenario places the Sensex at 1,00,000 by June 2027, while its bear-case scenario assumes a level of 66,000.

Conclusion

Morgan Stanley’s latest strategy report argues that India’s earnings recovery, supportive macroeconomic backdrop and strengthening capital expenditure cycle are creating conditions for a stronger market performance over the coming year.

While the brokerage continues to favour Financials, Consumer Discretionary and Industrials, one of its most notable calls is on information technology services. At a time when artificial intelligence is widely viewed as a threat to parts of the sector, Morgan Stanley said IT services could emerge as the “dark horse” as global companies increasingly rely on Indian firms to build artificial intelligence applications and solutions. Alongside that view, the brokerage maintained a June 2027 Sensex target of 89,000, implying 19% upside from current levels.

Disclaimer: The market strategy, index targets, portfolio positioning, and sector forecasts discussed in this report are based on institutional equity research from Morgan Stanley and do not constitute direct buy, sell, or hold recommendations for retail investors. Equity investments, particularly within cyclical sectors like financials, industrials, and technology services, are subject to systemic risks including global macroeconomic shifts, corporate capital expenditure cycles, and technological disruptions such as artificial intelligence advancements. Individual risk appetites and investment horizons vary significantly; therefore, readers are strongly advised to consult a SEBI-registered investment advisor or a qualified financial consultant before making fresh capital allocations based on these projections.

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