Sensex Could Hit 107,000 By 2026-End, Says Morgan Stanley; Predicts Markets Will ‘Regain Mojo’

Indian equities could be headed for their strongest phase in years, with Morgan Stanley forecasting that the BSE Sensex may climb to 1,07,000 by December 2026 in its bull-case scenario and 95,000 in its base

case, implying a potential 13% upside from current levels. The global brokerage believes that after India’s sharp underperformance in 2025, the market is positioned for a broad-based recovery supported by macro tailwinds, policy easing, and a renewed earnings cycle.

According to the brokerage, India is set to “regain its mojo” in 2026, transitioning from a stock-picking market to one driven by macro factors. Foreign investor positioning is currently “the lightest in history,” valuations have normalised, and domestic fund flows remain structurally strong — a combination Morgan Stanley views as the foundation for a multi-year rebound.

The bull-case scenario, to which analysts assign a 30% probability, depends on persistently low oil prices below $65 a barrel, a reversal in global tariff trends, sustained reflationary policies, and strong economic momentum. If these conditions materialise, Morgan Stanley expects Sensex earnings to grow at a 19% CAGR between FY25 and FY28, offering meaningful support to equity valuations.

Even in the base-case scenario, which carries a 50% probability, the brokerage anticipates strong performance, projecting the Sensex to reach 95,000 by the end of 2026, translating into a 13% gain. This outcome assumes continued macro stability, fiscal consolidation, healthy private-sector capex, stable global growth, and a supportive liquidity environment that could include domestic monetary easing. Within this framework, earnings are forecast to grow at 17% CAGR through FY28. In contrast, a bear case — shaped by global challenges such as oil prices surging above $100, tighter monetary conditions, or weaker external demand — envisions the Sensex falling to 76,000.

Morgan Stanley’s analysts, led by Ridham Desai and Nayant Parekh, attribute their optimism to India’s anticipated policy pivot. “Following their worst underperformance in three decades, we see Indian equities regaining their mojo in 2026. Policy has pivoted, supporting a strong recovery in nominal growth, which should take earnings growth out of the mid-cycle slowdown experienced over the past 12 months. Relative valuations are consistent with improved forward performance. FPI exposure remains the lightest in history,” Desai said, noting that Indian equities appear poised to reverse their worst relative performance to emerging markets in 31 years.

The report highlights expected rate cuts, improved liquidity, and mass-market consumption stimulus — including potential GST rate reductions in key sectors — as likely catalysts for the next leg of market outperformance.

India’s strengthening external sector, marked by declining oil intensity and robust services exports, also provides macro support. The research underscores India’s stable policy environment, rapid infrastructure progress, and rising domestic investor participation as structural advantages that set Indian equities apart as the global cycle turns.

Portfolio Strategy

Morgan Stanley continues to prefer domestic cyclicals over defensives and external-facing sectors. It remains overweight on financials, consumer discretionary, and industrials, while staying underweight on energy, materials, utilities, and healthcare. “The market is transitioning into one that will be driven by macro factors, with stock-picking losing importance. We are capitalization-agnostic,” the brokerage said.