Morgan Stanley sees Sensex at 107,000 by Dec 2026; valuations, macro key

Morgan Stanley, under its bull case, has set a BSE Sensex target of 107,000, implying an upside potential of 25 per cent through December 2026

Analysts at Morgan Stanley maintained a bullish view on Indian equities, citing improving valuations alongside an inflection point in the growth cycle. The brokerage is overweight on financials, consumer discretionary and industrials packs. 

 

Valuations, trailing performance, macro stability, positioning and the growth cycle all signal improving stock returns in the months ahead, the global brokerage led by equity strategists Ridham Desai and Nayant Parekh said in a note on January 6. 

 

The brokerage, under its base case, has set a BSE Sensex target of 95,000, implying an upside potential of 13 per cent through December 2026. In its bull case, Morgan Stanley set a target of 107,000, an upside of about 25 per cent. 

 

 

The trailing 12-month performance of the local stocks has been the worst in history, and relative valuations are approaching previous troughs, the note said. For the first time in nearly five years, equity valuations look favourable relative to short-term interest rates and the modified earnings yield gap is pointing to upside for equities, Morgan Stanley said. 

 

In calendar year 2025, Indian equities delivered their weakest relative performance against global peers in decades, even as the Nifty ended the year up 10.5 per cent. 

Macro drivers

On the growth momentum, analysts said that they see a sharp turn in earnings growth over the coming months. This is backed by "reflation effort of the RBI and the government via rate cuts, CRR cut, bank deregulation and liquidity infusion, front loading of capex and a near ₹1.5 trillion in GST rate cuts."

 

The third-quarter earnings season for India Inc. is set to kick off later this week, with Avenue Supermarts scheduled to announce its results on January 10, followed by information technology (IT) majors led by HCL Technologies and Tata Consultancy Services on January 12.

 

Adding to the growth momentum, analysts noted that the thawing of relations with China and China's anti-involution efforts add to the mix. "Thus, India’s hawkish macro set up post-Covid is now unwinding."

 

Morgan Stanley said the declining oil intensity of India's gross domestic product (GDP), a rising share of exports -- particularly services -- and ongoing fiscal consolidation point to a lower savings imbalance, paving the way for structurally lower real interest rates. The brokerage added that reduced inflation volatility, driven by supply-side improvements and flexible inflation targeting, is also likely to lead to lower volatility in interest and growth rates in the coming years, adding to the case for a re-rating. 

Where to invest?

Morgan Stanley said its portfolio strategy favours domestic cyclicals over defensives and external-facing sectors. The brokerage is overweight on financials, consumer discretionary and industrials, while remaining underweight on energy, materials, utilities and healthcare, and is agnostic to market capitalisation.

 

Maruti Suzuki India, Trent, Titan Co., Varun Beverages, Reliance Industries, Bajaj Finance, ICICI Bank, InterGlobe Aviation, Larsen and Toubro and UltraTech Cement are the stocks under the brokerages' focus list, all having an 'overweight' rating.'  ====== 

(Disclaimer: The views and investment tips expressed by the brokerage in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.)