Morgan Stanley believes the worst may be over for Indian equities after a prolonged correction earlier this year. The brokerage maintains its "Neutral" stance on Indian equities while projecting a June 2027 target of 89,000 for the BSE Sensex, implying an upside of about 20% from current levels. Since January 1, domestic markets have witnessed significant weakness with the benchmark Nifty 50 falling about 11% and BSE Sensex declining roughly 13%, reflecting broad-based weakness across sectors. As per The Economic Times, Morgan Stanley expects Indian equities to recover as earnings growth improves, macroeconomic conditions remain supportive, and valuations become more attractive following the recent correction. The brokerage believes India is entering a new profit growth cycle with gradual recovery expected across multiple sectors over the coming quarters.
Morgan Stanley has set an ambitious June 2027 target of 89,000 for the BSE Sensex, implying an upside of about 20% from current levels. The brokerage assigns a 50% probability to this base-case scenario, with the target based on the Sensex trading at a trailing price-to-earnings multiple of 23.5 times, slightly above its 25-year average of 22 times. As per The Economic Times, this premium valuation reflects greater confidence in India's medium-term growth outlook, the market's lower beta, a higher terminal growth rate and a stable policy environment. The target is supported by Sensex earnings projected to compound at an annual rate of 16% through FY29.
Morgan Stanley remains constructive on capital expenditure trends across sectors including energy, defence, semiconductors, fertilisers and data centres. The brokerage expects the investment-to-GDP ratio to rise from 31.5% to 37.5% over the next five years, providing a strong foundation for growth. According to The Economic Times, India contributed 18% of global GDP growth in 2025 and expects this share to increase further in the years ahead. The report also highlights that India's share of global profits exceeds its weight in global indices by the highest margin seen since 2009, indicating significant undervaluation. India introduced substantial stimulus over the past year through tax cuts, rate cuts and liquidity support, with the impact now beginning to reflect on earnings.
Morgan Stanley believes India could be a major beneficiary of AI-driven productivity gains given the country's relatively low starting point in labour productivity. The brokerage expects IT services to emerge as a surprise outperformer as companies increasingly turn to the sector to build AI applications and solutions. According to The Economic Times, if India can lift nominal growth to 12%, the equity market could become a strong long-term compounder through the remainder of the decade. The primary concern driving global investor sentiment remains India's limited participation in the massive AI capex cycle, with the top US hyperscalers expected to spend nearly $800 billion in capex this year and over $1 trillion next year. However, Morgan Stanley notes that demand could improve as global enterprises increasingly shift their focus from building AI infrastructure to developing AI-powered applications, creating fresh opportunities for IT service providers and digital transformation companies.
For equity investors, Morgan Stanley sees a compelling mix of broad-based earnings growth, strong domestic equity inflows, an emerging IPO pipeline, attractive relative valuations and historically low foreign investor positioning. From a valuation standpoint, financials look the most attractive according to the analysis, with the sector showing improving growth and likely stable margins. The brokerage's sector strategy includes overweight positions in financials, consumer discretionary, and industrials, while maintaining underweight stances in energy, materials, utilities, and healthcare. Morgan Stanley cautioned that India's biggest risks remain largely external, including geopolitical tensions, a slowdown in global growth, and India's strong dependence on oil imports. Domestically, the brokerage flagged concerns around low agricultural productivity, capacity constraints in the judiciary and the potential impact of embodied AI on labour markets. However, the report notes that balance sheets are in very good shape with corporate, household and government finances significantly healthier than in past cycles.
