Sensex can hit 100,000 by June 2026; market correction over: Morgan Stanley

The correction in the Indian stock market is over, believe analysts at Morgan Stanley, as the key factors driving India’s underperformance compared to emerging market (EM) peers are reversing. 

  In a bull-case scenario – to which they attach a 30 per cent probability – Morgan Stanley sees the Sensex hitting the 100,000 mark by June 2026.

 

Their base-case scenario (50 per cent probability) pegs the Sensex at 89,000 levels – up around 6.6 per cent from the current levels, while their bear-case scenario pegs the index at 70,000 mark (down 16 per cent from the current levels) to which they have assigned 20 per cent probability.

 

Among stocks, Maruti Suzuki, Trent, Titan Company, Varun Beverages, Reliance Industries (RIL), Bajaj Finance, ICICI Bank, Larsen & Toubro (L&T), UltraTech Cement and Coforge are the 10 Indian stocks where Morgan Stanley remains overweight.

 

The transition

 

The Indian stock market, Morgan Stanley believes, is transitioning into one that will be driven by macros and stock-picking will likely lose importance.

 

India’s growth cycle is set to accelerate, wrote Ridham Desai, managing director and chief India equity strategist, Morgan Stanley in a coauthored report with Nayant Parekh.

 

This acceleration in growth, they said, is backed by the reflation effort of the Reserve Bank of India (RBI) and the government via rate cuts, cash reserve ratio (CRR) cut, bank deregulation and liquidity infusion, front loading of capex and a near Rs 1.5 trillion in GST rate cuts.

 

“The thawing of relations with China and China's anti-involution add to the mix. A likely India-US trade deal should further boost sentiment. Thus, India’s hawkish macro set-up post-Covid is now unwinding. Relative valuations have corrected and likely made a trough in October,” the report said.

 

The falling intensity of oil in India's gross domestic product (GDP), Morgan Stanley argues, and rising share of exports in GDP, especially services, and fiscal consolidation imply a lower saving imbalance. This, it said, will allow structurally lower real rates.

 

"At the same time, lower inflation volatility as a result of both supply-side and policy changes mean that volatility in interest rates and growth rates is likely falling in the coming years. High growth with low volatility and falling interest rates and low beta = higher price-earnings (P/E). This also supports the shift in household balance sheets towards equity," the report said.

 

Risks and triggers

 

The downside risks to their assumptions for the Indian economy and markets, Morgan Stanley said, arise from slowing global growth and worsening geopolitics.

 

Going ahead, Desai and Parekh expect 'positive' earnings revisions, rate cuts by the RBI in the coming quarter, privatization of public sector companies and lower US tariffs on India, which they believe will serve as the key catalysts for an uptick in the Indian economy and markets.

 

"Foreign portfolio investor (FPI) positioning remains near lows, but net FPI buying will need growth to recover and/or bull markets elsewhere to fade, plus a rise in corporate issuances. Downside risks arise from slowing global growth and worsening geopolitics," the report said.