Why Morgan Stanley expects SENSEX, NIFTY50 to touch record highs soon

Global investment bank Morgan Stanley has projected that Indian equity markets could surge to new highs in the coming months backed by strong macroeconomic fundamentals, policy stability and improving investor sentiment.

In its latest report titled India Equity Strategy Playbook, the global investment bank has set a base-case BSE SENSEX target of 89,000 by June 2026, implying a 10% upside from current levels.

Authored by Ridham Desai and Nayant Parekh, the report highlights India’s emerging strength as a global economic engine, driven by structural enablers such as robust population growth, political stability, macro prudence and an expanding entrepreneurial base.

“India is likely to gain share in global output in the coming decades… It will become the world’s most sought-after consumer market, undergo a major energy transition, and see a sharp rise in credit penetration and manufacturing share in GDP,” the report said.

In its base case scenario, Morgan Stanley expects SENSEX at 89,000 on the back of continued macroeconomic stability, fiscal consolidation, rising private investment, a dovish monetary stance with 50bps rate cuts and benign oil prices. Earnings are expected to grow at compounded annual growth rate (CAGR) of 16.8% by FY28.

In the bull case, SENSEX is likely to hit 1,00,000 mark given low oil prices below $65/barrel, aggressive rate cuts, strong global trade revival, surprise upside in government reforms including GST rationalisation and earnings compounding at 19% CAGR.

Bear case projects SENSEX could fall down to 70,000 levels if oil spikes above $100/barrel, global recession led by the US, tighter RBI policy, and earnings growing at lower than 15% CAGR.

Morgan Stanley believes that the base-case SENSEX target of 89,000 implies a trailing price to earnings (P/E) ratio of 23.5 times, which is above the 25-year average of 21 times. However, this premium is justified by factors such as India’s lower beta, stronger medium-term growth outlook and predictable policy environment.

“This will allow structurally lower real rates. At the same time, lower inflation volatility as a result of both supply-side and policy changes (flexibility inflation targeting) mean that volatility in interest rates and growth rates is likely falling in coming years. High growth with low volatility and falling interest rates and low beta = higher P/E,” Morgan Stanley said.

“This also supports the shift in household balance sheets towards equity and appears in the equity market in the form of a sustained bid on stocks. The low beta itself emanates from improved macro stability and the structural shifts in household balance sheet towards equities. Price action hides how much stocks have de-rated relative to long bonds and gold and how India is gaining share in global GDP,” the investment bank added.