Global brokerage firm Morgan Stanley has said Indian equities are setting up for a strong rebound with the BSE Sensex likely to rise to 95,000 by December 2026, indicating an upside of about 22% from current levels. The international brokerage firm said valuations are near historical lows, earnings growth is returning and macro conditions remain supportive, even as global risks persist.
In its latest India Equity Strategy report titled ‘A Bull Market on the Horizon’, Ridham Desai of Morgan Stanley said markets appear to have already absorbed negative triggers, creating favourable risk reward for investors.
| Scenario | Sensex Target (Dec 2026) | Probability | Upside/Downside |
| Base Case | 95,000 | 50% | 22% |
| Bull Case | 1,07,000 | 30% | 0.38 |
| Bear Case | 76,000 | 20% | Downside risk |
Market has priced in bad news, says Morgan Stanley
Morgan Stanley said recent performance data suggest that Indian equities are trading close to past trough conditions despite steady earnings visibility.
“The market appears set up for a big move,” the brokerage firm said in the report.
It pointed out that trailing 12-month performance has been among the weakest in history while relative valuations are near previous lows. The report also noted that India’s share in global profits is at its highest compared to index weight, indicating a disconnect between fundamentals and pricing.
Another key observation from Morgan Stanley was that the Sensex is trading at one of its cheapest levels when measured in gold terms, which historically has coincided with strong forward returns.
Sensex target at 95,000 with bull case at 1,07,000
Morgan Stanley has outlined three scenarios for the BSE Sensex through December 2026.
The base case assigns a 50% probability to the index reaching 95,000, implying an upside of around 22%. The bull case places the Sensex at 1,07,000 with a 30% probability, translating into a potential gain of about 38%. The bear case stands at 76,000 with a 20% probability.
The brokerage firm expects earnings per share to grow at a compounded rate of 17% annually through financial year 2028 under its base case assumptions.
“Sensex earnings compound at 17% annually through F2028,” the report said.
Morgan Stanley also expects valuation multiples to remain above long term averages due to stronger confidence in India’s growth cycle and policy stability.
Earnings cycle turning positive after weak phase
Morgan Stanley has said that the earnings cycle in India is beginning to recover after a period of slowdown.
High frequency indicators across consumption, investment and services activity show improving trends, suggesting that corporate profitability may strengthen over the coming quarters.
“The earnings up cycle has resumed with high frequency data showing strength,” the brokerage firm said.
The report also noted that earnings revisions are likely to turn positive, which historically has supported market rallies.
Morgan Stanley expects broader market earnings growth to accelerate from about 5% in financial year 2026 to over 20% in financial years 2027 and 2028.
Domestic economy remains key support
The brokerage firm has placed strong emphasis on domestic drivers supporting the market.
Morgan Stanley expects growth to remain resilient with gross domestic product expansion at 7.5% in financial year 2026, followed by stable growth in subsequent years.
It also highlighted improving policy clarity, rising capital expenditure and stable inflation trends as supportive factors.
“Policy momentum looks strong and domestic bid has withstood a major market drawdown,” the report said.
The firm added that the Reserve Bank of India has improved sentiment around the rupee, which remains undervalued according to its assessment.
Sector bets favour domestic growth themes
Morgan Stanley has recommended a clear tilt towards domestic cyclicals over defensive and export oriented sectors.
The brokerage firm is overweight on financials, consumer discretionary and industrials, citing improving credit growth, rising consumption demand and continued government and private capital expenditure.
“Domestic cyclicals over defensives and external facing sectors,” the report said while summarising its strategy.
Financials remain a core allocation with expectations of steady loan growth and manageable credit costs. Consumer discretionary is expected to benefit from urban demand recovery, while industrials are supported by infrastructure spending.
Underweight on energy, materials and defensives
Morgan Stanley has taken a cautious stance on several sectors.
The brokerage firm is underweight on energy, materials, utilities and healthcare. It prefers domestic exposure over global cyclicals and sees limited upside in defensive sectors at this stage.
“We are avoiding defensive sectors,” the report said.
Energy and materials are seen as more exposed to global commodity cycles, while utilities lack cyclicality that could benefit from economic expansion.
Global risks and AI concerns remain
Despite its constructive view, Morgan Stanley has highlighted several risks that could affect the market outlook.
The report pointed to potential challenges from global growth slowdown, geopolitical tensions and rising commodity prices.
“The Middle East conflict has created supply side challenges in gas and fertilizers,” the brokerage firm said.
Another concern raised was India’s limited direct exposure to artificial intelligence, which could affect services exports if disruption accelerates.
“The lack of direct AI play seems to be the most persistent challenge,” the report said.
At the same time, Morgan Stanley noted that if artificial intelligence adoption improves productivity, it could act as a positive catalyst.
Flows, buybacks and positioning support upside
Morgan Stanley has also pointed to technical and flow related factors supporting the market.
The report said foreign investor positioning has weakened in recent months, which could lead to sharp inflows if sentiment improves.
Corporate buybacks are expected to rise, creating additional demand for equities.
“Corporate buybacks likely new high in the coming months,” the report noted.
The firm also highlighted that domestic investors have continued to support the market even during periods of correction, providing stability.
Conclusion
Morgan Stanley’s latest strategy note presented a constructive view on Indian equities with expectations of a meaningful upside over the next 12 to 18 months. The brokerage firm believes that weak sentiment, attractive valuations and improving earnings together create a favourable setup for markets.
While global risks remain, the firm’s preference for domestic cyclicals signals confidence in India’s internal growth drivers sustaining momentum.
Disclaimer: This report is based on projections by a global brokerage firm and is intended for informational purposes only. It does not constitute a specific offer or solicitation to buy or sell any securities, nor does it guarantee specific returns or price targets. Given the inclusion of market forecasts and sector-specific analysis, readers are advised to consult with a SEBI-registered investment advisor before making any financial decisions, as equity investments are subject to market risks and volatility.
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