Sensex At 1.1 Lakh By 2026-End? Morgan Stanley Sees Strong Case, Retains Bullish Stance

Global brokerage Morgan Stanley has reiterated a constructive view on Indian equities, saying a sharp recovery in the coming months could push the BSE Sensex towards the 1.1 lakh mark under its bull-case scenario by December 2026.

In its latest India strategy note, the brokerage said India’s recent underperformance has created a compelling entry point, calling the trailing 12-month market returns “almost the worst in history”. It noted that valuations, positioning and earnings trends are now aligned to support a rebound.

The firm retained its base-case Sensex target of 95,000 for December 2026, while keeping its bull-case target of 1,07,000 (with a 30 per cent probability) and 1.1 lakh points (20 per cent probability), and bear-case target of 76,000

(20 per cent probability) unchanged.

“India’s share in profits exceeds its index weight by the highest margin ever, and the Sensex is nearly the cheapest ever in gold terms. FPI positioning has only weakened over the past several months. At the same time, it seems earnings up cycle has resumed with high-frequency data showing strength,” Morgan Stanley said.

The brokerage added that improving macro signals are supporting sentiment. “The RBI has turned the sentiment on the rupee, which remains undervalued. Policy momentum looks strong too and the domestic bid has withstood a major market drawdown,” it said.

Morgan Stanley expects the index to trade at a trailing price-to-earnings (P/E) multiple of 23.5 times under its base case, slightly above the 25-year average of 22 times. It said the premium reflects stronger confidence in India’s medium-term growth outlook, lower market volatility, higher terminal growth expectations and a predictable policy environment.

The brokerage assumes a supportive liquidity backdrop, with no bunching of primary issuances and continued strength in retail participation. It also builds in a 17 per cent annual compounding in Sensex earnings through FY2028.

Importantly, Morgan Stanley believes earnings revisions could turn positive as growth signals remain stronger than consensus expectations. It highlighted ongoing structural reforms and productivity gains, including early signs of efficiency improvements linked to artificial intelligence.

However, it flagged key risks. “The lack of direct AI play seems to be the most persistent challenge with potential AI disruption for Indian services exports aggravating matters. Market plumbing remains an issue – passive money needs to keep selling to keep pace with India’s falling index weight and hedge funds favour India as a funding short,” it said.

The brokerage added that external risks such as slowing global growth and worsening geopolitics could weigh on the outlook.

Still, with valuations at historical troughs, earnings momentum picking up and policy support strengthening, Morgan Stanley’s outlook suggests that a move towards 1 lakh, and potentially 1.1 lakh in a bull-case scenario, remains within reach for Indian equities over the next 12–18 months.