Despite the prevailing risks from a slowdown in earnings and oil price shock, which have prompted other global brokerages to turn bearish on the Indian stock market, Morgan Stanley remains among the few bulls as it projects the BSE barometer in the next 12 months or so.
The brokerage’s Sensex target signals an upside potential of 15% through June 2027.
“This level suggests that the Sensex would command a trailing P/E multiple of 23.5x, ahead of the 25-year average of 22x. The premium over the historical average reflects greater confidence in the medium-term growth cycle in India, lower beta, a higher terminal growth rate, and a predictable policy environment,” said Morgan Stanley’s equity strategist Ridham Desai as he assigned a 50% probability to this base-case scenario.
Currently, Sensex is trading at the 74,600 level and remains 10% lower in a year.
What could drive Sensex higher?
Calling India a “defensive growth market”, Morgan Stanley assumes to accelerate after a turnaround from a six-quarter mid-cycle slowdown. This will be backed by factors like RBI rate cuts, bank deregulation and liquidity infusion, strong capex trends in energy, defence, semiconductors, fertilisers and data centres, among others, large tax cuts and relatively stimulating fiscal.
Robust domestic growth, steady global growth, and lower oil prices from the current levels are also part of our assumptions.
On the front, Morgan Stanley finds the trailing 12M relative performance at its worst in history and relative valuations at previous troughs, with foreign positioning at multi-year lows. However, it said that India’s share of global profits exceeds its global index weight by the highest margin ever since 2009,” making the brokerage bullish on the India story.
It took cognisance of the lack of a direct AI play as “the most persistent challenge to the equity market”, with potential for Indian services exports aggravating matters. However, beyond these challenges, it expects India to be a big gainer in a multi-polar world, with manufacturing share in GDP likely to rise in the coming decade.
It finds its growing consumer base in India’s key leverage, with the rising incomes of a relatively young population. In 2025, India was 18% of , a number that is likely to be higher in the coming years. Furthermore, given the low starting point of labour productivity, India is a major beneficiary of AI-led productivity gains.
Sectoral bets
Sectorally, is betting on domestic cyclicals over defensive and external-facing sectors, as key risks to India are mostly external, including geopolitical tensions and slowing global growth, it observed.
Against this backdrop, it finds value in financial, consumer discretionary, and industrials. “IT services could be the dark horse as the world pivots to these companies to build AI applications and solutions,” it added.
On the flip side, it remains underweight on energy, materials, utilities and healthcare.
Bull & bear case scenarios
In the bull case scenario, Desai sees Sensex at the 100,000 mark as it expects to go below US$80/bbl in this case, resulting in better terms of trade. “Reflation policies start to achieve success and result in higher growth estimates. Earnings growth compounds at 19% annually over F2026-29,” it said.
As of the bear case, it expects a decline in Sensex to 66,000, mainly on account of higher for longer crude and hawkish central bank and a major slowdown in global growth.
Disclaimer: This story is for educational purposes only. 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.