Sensex Seen At 95,000 By End-2026 As Policy Pivot Revives Growth: Morgan Stanley

Indian equities are likely to regain momentum in 2026 following their sharp underperformance in 2025, which marked the country’s worst relative showing against emerging markets since 1994, according to Morgan Stanley’s 2026 India Equity Strategy Outlook.

The brokerage expects a recovery in growth and earnings to reverse what it describes as a “mid-cycle slowdown” experienced over the past year, supported by a shift in policy stance by both the government and the Reserve Bank of India.

Sensex Target At 95,000, Earnings Growth To Accelerate

Morgan Stanley has set a base-case target of 95,000 for the BSE Sensex by December 2026, implying an upside of around 13% from current levels. The forecast is underpinned by an expected 17% compound annual growth rate in Sensex earnings through FY2028.

In its base scenario, Sensex earnings per share are projected to rise from ₹3,353 in FY26 to ₹4,711 by FY28, with year-on-year earnings growth accelerating from 7% in FY26 to nearly 20% in FY27.

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Policy Easing, Capex Revival Seen Lifting Growth

Morgan Stanley attributes the expected rebound to a combination of fiscal consolidation, front-loaded public capital expenditure, liquidity infusion, and monetary easing. The brokerage assumes at least one 25 basis point rate cut, improved system liquidity, and continued deregulation in the banking sector.

Nominal GDP growth is expected to remain in the 10–11% range over the next five years, while real GDP growth is projected at 6.8% in FY26 and 6.5% in FY27, supported by lower inflation volatility and improving terms of trade.

Domestic Flows Cushion Global Risks

Despite weak foreign portfolio investor positioning, currently near historic lows, Morgan Stanley notes that domestic institutional and retail flows remain structurally strong. Equity issuances are running at about 1% of GDP, significantly below the previous peak of over 3.5%, suggesting room for capital raising without disrupting markets.

The report adds that India’s declining oil intensity, rising share of services exports, and fiscal discipline have lowered macro volatility, contributing to a structurally lower equity beta.

Sector Strategy: Cyclicals Over Defensives

Morgan Stanley’s portfolio strategy favours domestic cyclicals over defensives, with an overweight on financials, consumer discretionary and industrials, while remaining underweight on energy, materials, utilities, and healthcare.

The brokerage expects 2026 to be more macro-driven than stock-picking oriented, marking a transition phase after a volatile 2025.

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