Global brokerage Morgan Stanley has turned increasingly bullish on Indian equities even as domestic markets continue to face pressure from foreign investor selling, geopolitical uncertainty and valuation concerns.
In its latest India strategy note, the brokerage projected that the BSE Sensex could rise to 89,000 by June 2027, implying an upside potential of nearly 15% from current levels. The brokerage believes India is emerging from a six-quarter earnings slowdown and entering a stronger growth cycle that could support higher market valuations.
According to Ridham Desai, Managing Director and Chief Equity Strategist at Morgan Stanley India, the Indian market is entering what he described as a “defensive growth” phase. He said the brokerage's target assumes continued gains in macroeconomic stability, increased private investment and a positive gap between real growth and real interest rates.
“Our BSE Sensex target of 89,000 implies upside potential of 15% through June 2027,” Desai said in the report. He added that the target suggests the Sensex would trade at a trailing price-to-earnings multiple of 23.5 times, slightly above the historical 25-year average of 22 times. Morgan Stanley believes this premium valuation is justified because of stronger confidence in India's medium-term growth outlook, lower market volatility and a predictable policy environment.
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Morgan Stanley's base-case scenario, which it assigns a 50% probability, assumes robust domestic growth, steady global expansion, benign monetary policy and lower oil prices from current levels. The brokerage also expects domestic investor inflows to remain strong enough to absorb market supply. Under this scenario, Sensex earnings are projected to compound at 16% annually through FY29.
The brokerage's bull-case scenario places the Sensex at 100,000 and carries a 25% probability. Morgan Stanley said this could materialise if oil prices fall below $80 per barrel, global reflation policies gain traction and earnings growth accelerates further. In that case, Sensex earnings could compound at 19% annually between FY26 and FY29.
Its bear-case scenario, also carrying a 25% probability, projects the Sensex declining to 66,000. Morgan Stanley said risks to the market include crude oil prices rising above $120 per barrel, a meaningful slowdown in global growth and tighter monetary policy by the Reserve Bank of India to protect macroeconomic stability. Under that scenario, earnings growth would weaken and market valuations could compress sharply.
Despite persistent selling by foreign institutional investors, Desai remains optimistic on India's structural story. He believes progress on trade agreements with the US and UK, improving relations with China, strong domestic equity inflows and an undervalued rupee could emerge as important tailwinds for the market.
The brokerage also acknowledged geopolitical tensions as a growing risk, particularly because of India's dependence on imported crude oil. However, Morgan Stanley noted that the Indian economy is now significantly less oil-intensive than in previous decades, reducing the impact of energy price shocks compared to the past.
Desai also highlighted Indian IT services as a potential “dark horse” sector. According to him, the global shift toward artificial intelligence applications and digital transformation could create fresh growth opportunities for Indian technology companies. He suggested the market may not yet be fully pricing in the potential benefits that AI-led spending could bring to the sector over the coming years.
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