You’re underestimating India’s growth cycle, stock market peak in front of us: Morgan Stanley

While sticking to its target of the Sensex hitting the 1 lakh mark by June 2026 in the bull-case scenario, with a 30% probability, global investment giant Morgan Stanley on Monday said that the earnings and market peak are still ahead.

The brokerage firm doubled down on its bullish India thesis even as foreign portfolio investors slashed their positioning to the weakest levels since data began in 2000, setting up a dramatic clash between global pessimism and Morgan Stanley’s conviction.

“The equity market may be underestimating the likely turn in the growth cycle. The earnings and market peak are ahead of us,” Morgan Stanley equity strategist Ridham Desai declared, throwing down the gauntlet to bears who believe India’s best days are behind it.

Desai painted a sweeping vision of India’s structural transformation: “There is a strong case for re-rating. India is likely to gain share in global output in the coming decades, driven by strong foundational factors, including robust population growth, a functioning democracy, macro-stability-influenced policy, better infrastructure, a rising entrepreneurial class, and improving social outcomes.”

Also Read | Rs 2.4 lakh crore GST boost! Jefferies, Morgan Stanley decode impact on stocks, economy

Live Events

The $100 Billion Sensex moonshotThe firm’s base-case BSE Sensex target of 89,000 implies upside potential of 12% to June 2026, suggesting the index would trade at a trailing P/E multiple of 23.5x, above the 25-year average of 21x.In Morgan Stanley’s bull-case scenario targeting a Sensex of 100,000, “oil prices are persistently below US$65, resulting in better terms of trade. Strong GST reforms set the stage for growth upgrades and lower interest rates. The global trade war is curtailed by complete reversals in tariff positions, leading to improved growth prospects. Earnings growth compound at 19% annually over FY2025-28.”

Desai outlined a structural shift that could redefine India’s market dynamics, saying India will become the world’s most sought-after consumer market, undergo a major energy transition, see credit to GDP rise, and manufacturing gain share in GDP.

“The falling intensity of oil in GDP and rising share of exports, especially services, along with fiscal consolidation (with a likely primary surplus in three years), imply a lower savings imbalance. This will allow structurally lower real rates,” he said.

Morgan Stanley’s most compelling argument centers on India achieving the holy grail of investing: “High growth with low volatility, falling interest rates, and low beta = higher P/E,” Desai explained.

“Lower inflation volatility, resulting from both supply-side and policy changes (flexible inflation targeting), means that volatility in interest rates and growth rates is likely to fall in the coming years,” he added, noting that the soft earnings growth patch that started with Q2 seems to be ending, though the market is not yet convinced.

The strategist pointed to multiple catalysts: “Supporting a turn in growth are a dovish central bank, likely GST reforms, a good monsoon season, recovery in consumer confidence, thawing of relations with China, and likely improving capex.”

Despite foreign portfolio investors pulling back dramatically, Morgan Stanley sees this as validation of its thesis: “Our view remains that India’s low beta implies outperformance in a global bear market but underperformance in a bull market – as we are currently seeing.”

Morgan Stanley’s portfolio is overweight financials, consumer discretionary, and industrials, and underweight energy, materials, utilities, and healthcare.

The firm expects “this is likely to be a stock-pickers’ market, in contrast to one driven by top-down or macro factors,” running an average active position of just 80bp while remaining “capitalization-agnostic.”

As India stands at this critical juncture between global skepticism and domestic transformation, Morgan Stanley’s bold call puts the spotlight squarely on whether the world’s most populous nation can deliver on its promise of becoming the next growth superpower – with trillion-dollar market implications hanging in the balance.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)

Add as a Reliable and Trusted News Source



_{Images are for reference only.Images and contents gathered automatic from google or 3rd party sources.All rights on the images and contents are with their legal original owners.}