Morgan Stanley has turned more bullish on India, forecasting the BSE Sensex could rise to 89,000 by June 2027, implying around 15% upside from current levels. According to reports from The Economic Times, in the bull case scenario, the brokerage also sees the possibility of Sensex hitting the 1 lakh milestone with a 25% probability. Strategist Ridham Desai said India is emerging from a six-quarter earnings slowdown into a stronger growth phase after a "mid-cycle" pause. The latest report from Morgan Stanley indicates that Indian equities are set for a strong year ahead due to acceleration in earnings growth and reflationary policies of the RBI, along with policy moves such as rate cuts, bank deregulation and liquidity infusion. Strong capital expenditure in energy, defence, semiconductors, fertilisers and data centres, along with large tax cuts, are other factors likely to drive an earnings upswing. Currently, Sensex is trading at the 74,600 level and remains 10% lower in a year, as per Mint.
The brokerage's top-down forecasts put Sensex EPS at 3,344 in FY26, 3,785 in FY27 and 4,525 in FY28, implying year-on-year growth of 10.3%, 13.2%, and 19.6% respectively. As reported by The Economic Times, broad market earnings are seen growing 10% in FY26, 15% in FY27, and 22% in FY28. A proprietary leading indicator suggests 2-year forward Sensex earnings growth is set to pick up sharply, with an R-squared of 74% against actual outcomes historically, reinforcing their view that "the earnings cycle [is] set to resume." The investment bank forecasted a reversal after a six-quarter slowdown as valuations and sentiment sit near extremes. The brokerage's Sensex target signals an upside potential of 15% through June 2027, with the level suggesting that Sensex would command a trailing P/E multiple of 23.5x, ahead of the 25-year average of 22x. The premium over the historical average reflects greater confidence in the medium-term growth cycle in India, lower beta, a higher terminal growth rate, and a predictable policy environment.
Morgan Stanley's comprehensive scenario analysis reveals multiple pathways for Indian markets. The base-case scenario, assigned a 50% probability, assumes robust domestic growth, steady global expansion, benign monetary policy and lower oil prices from current levels. Under this scenario, Sensex earnings are projected to compound at 16% annually through FY29. The bull-case scenario, carrying a 25% probability, places the Sensex at 100,000 and could materialise if oil prices fall below $80 per barrel, global reflation policies gain traction and earnings growth accelerates further, with Sensex earnings compounding at 19% annually between FY26 and FY29. However, the bear-case scenario, also carrying a 25% probability, projects the Sensex declining to 66,000 due to crude oil prices rising above $120 per barrel, a meaningful slowdown in global growth and tighter monetary policy by the Reserve Bank of India. Under this bearish scenario, earnings growth would weaken and market valuations could compress sharply.
India already accounted for about 18% of global GDP growth in 2025 and that share is "likely to be higher in the coming years," according to the report. As reported by The Economic Times, the country is "one of the fastest-growing places for energy infrastructure" and could see a boom in data centres. Rising incomes among a relatively young population, and the potential for manufacturing's share in GDP to rise over the coming decade, sit at the core of their growth optimism. India's share of global profits now exceeds its global index weight "by the highest margin ever ex-2009," suggesting the country is delivering more earnings than its representation in global benchmarks would imply. The brokerage finds its growing consumer base in India's key leverage, with the rising incomes of a relatively young population. In 2025, India was 18% of global GDP growth, a number that is likely to be higher in the coming years. Furthermore, given the low starting point of labour productivity, India is a major beneficiary of AI-led productivity gains. Robust domestic growth, steady global growth, and lower oil prices from the current levels are also part of their assumptions. However, the brokerage acknowledged the lack of a direct AI play as "the most persistent challenge to the equity market," with potential AI disruption for Indian services exports aggravating matters.
On valuations, the brokerage acknowledges that headline multiples are not cheap but argues they are justified by the earnings and macro trajectory. According to The Economic Times, at the current market cap-to-GDP ratio and price-to-book levels, their composite indicators imply reasonable 10-year forward returns, with one model suggesting that a price-to-book of around 3.5 times corresponds to an annualised 10-year MSCI India return near 11%. The brokerage finds the trailing 12M relative performance at its worst in history and relative valuations at previous troughs, with foreign positioning at multi-year lows. However, it said that India's share of global profits exceeds its global index weight by the highest margin ever since 2009, making the brokerage bullish on the India story. Domestic equity flows are described as "stronger than ever," driven in part by record systematic investment plan (SIP) inflows and a steady rise in the number of SIP accounts. However, over the past one year, India's benchmark Nifty 50 has fallen about 5%, and foreign institutional investors have remained net sellers of Indian equities in every month of 2026 so far, as per Bloomberg data. Despite persistent selling by foreign institutional investors, Desai remains optimistic on India's structural story, believing 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 report maintains a 300-basis-point overweight on consumer discretionary, expecting strong consumption growth helped by lower interest rates, better income growth and lower taxes. Industrials receive a similar overweight as a pickup in private capex is expected to be driven by energy, mining, defence, fertilisers, semi-conductors and data centres. Financials are overweight by 200 basis points, with the house arguing that net interest margins are "troughing" and that strong credit growth and benign credit costs should underpin a "strong earnings cycle for banks." Ridham Desai favoured domestic cyclicals over defensives and external-facing sectors, and went overweight on financials, consumer discretionary and industrials. He gave underweight calls on Energy, materials, utilities and healthcare. "We are capitalisation-agnostic. IT services could be the dark horse as the world pivots to these companies to build AI applications," he said. The report predicted a 300 basis-point upswing to consumer discretionary and industrials on expected consumption growth, helped by lower interest rates, the effect of lower taxes and better overall income growth. Sectorally, Morgan Stanley is betting on domestic cyclicals over defensive and external-facing sectors, as key risks to India are mostly external, including geopolitical tensions and slowing global growth.
