Sensex could hit 89,000 by mid-2026, says Morgan Stanley
What's the story
Morgan Stanley has projected that the Sensex could hit a target of 89,000 by June 2026. This would be a nearly 10% increase from current levels. The prediction comes from equity strategists Ridham Desai and Nayant Parekh, who believe Indian equities are on the verge of a structural re-rating. Their optimism is based on fundamental changes in India's economy such as demographic advantages and macroeconomic stability.
Economic factors
Factors driving India's economic growth
Morgan Stanley's strategists believe that India's demographic dividend, a stable democracy, macro stability-driven policy, improved infrastructure, and growing entrepreneurship will help the country gain a larger share in global output. These factors are likely to make India the world's most attractive consumer market in the coming decades. They also expect these trends to accelerate India's energy transition and boost its manufacturing share in GDP.
Structural tailwinds
Other structural tailwinds for India
The strategists also point to India's declining oil GDP intensity, rising services exports, and fiscal consolidation as major structural tailwinds. These trends are expected to bridge the saving-investment gap in the country and keep real interest rates lower. Simultaneously, a decline in inflation volatility due to supply-side and policy measures (flexible inflation targeting) could reduce interest rate and growth rate volatility in the coming years.
Market outlook
Base case scenario for Sensex
Morgan Stanley's base case for the Sensex is 89,000, which implies a trailing price-to-earnings (P/E) of 23.5x, higher than the 25-year average of 21x. The report notes that "the premium over the historical average reflects greater confidence in the medium-term growth cycle in India." Under this scenario (50% probability), the Sensex earnings are expected to compound at an annual rate of 16.8% through FY2028 due to stable domestic growth and benign oil prices.
Market predictions
Bull and bear case scenarios
In its bull case scenario (30% probability), Morgan Stanley targets a Sensex of 100,000 if oil stays below $65 per barrel and global trade tensions ease significantly. Here, earnings could grow at an annual rate of 19% through FY2028. However, in the bear case scenario (20% probability), the Sensex could fall to 70,000 with slower earnings growth at 15% CAGR due to macro headwinds.