India in multi quarter growth upcycle, says Morgan Stanley; sees Sensex at 89,000 by June 2027

Wall Street major Morgan Stanley, in its latest strategy note, suggests that India could be in the midst of a multi-quarter growth upcycle. Given supportive equity valuations, we expect equity market performance to improve considerably in the coming months.

In its base case, which carries a 50% probability, Morgan Stanley expects the Sensex to reach 89,000. This scenario assumes continued gains in macroeconomic stability, higher private investment and a positive gap between real growth and real interest rates.

The brokerage also assumes robust domestic growth, steady global growth and lower oil prices from current levels, along with a benign monetary policy. It does not expect a bunching of issuances, with retail demand continuing to stay ahead of supply. Sensex earnings are expected to compound at 16% annually through F2029.

Why is Morgan Stanley upbeat?

Triggers in place - The principal catalyst is how the market gauges the growth gap between India and the world. That view may shift if global sentiment turns cautious on AI capex and/or India’s growth accelerates.

“High frequency indicators including earnings look really solid, underscoring an up-cycle in progress due to improving investments (we project the investment-to-GDP ratio climbing to 37.5% over the next five years), monetary policy support, an undervalued currency, lack of fiscal headwinds and a recovery in consumer sentiment,” the brokerage led by Ridham Desai said in a note.

“India, in our view, is amid far-reaching reforms that could lift growth rates in the coming quarters as well as make capital flows easier. A rising wave of IPOs can lend further support until it turns excessive – a point we see as several months off.”

Defensive growth market - Morgan Stanley sees India as a “defensive growth market”, with a major earnings cycle expected to unfold over the coming quarters, barring a global growth shock or a resurgence of inflation risks at home. The brokerage expects this earnings cycle to push corporate profits as a share of GDP to a new high.

For equity investors, Morgan Stanley sees a compelling combination of broad-based growth acceleration, robust domestic flows, a nascent IPO pipeline, weak trailing 12-month relative performance, relative valuations that are just off their all-time lows and still-weak foreign investor positioning. India’s share of global profits now exceeds its weight in global equity indices by the widest margin on record, excluding 2009.

De-rating of India’s valuations cyclical or secular?

The secular case rests on expectations of a lower terminal growth rate, driven either by falling fertility rates or by AI’s impact on India’s large services economy and exports. However, both concerns appear overstated. While fertility is slowing, the decline is gradual and could support growth over the next two decades, even as it reduces India’s long-term demographic advantage.

AI presents a near-term risk to the momentum of India’s services exports, but over the medium term, it could also help lift labour productivity from a low base. Longer-term growth is further supported by a multipolar world that could increase India’s share of global goods trade, a widening consumer base and a significant pickup in investment.

Against this backdrop, the de-rating appears more cyclical than secular, driven by a sharp negative gap in relative growth. India’s growth appears to have bottomed and is now trending higher, but it continues to lag growth elsewhere, particularly in economies benefiting from the AI capex cycle.

What Morgan Stanley likes

The portfolio favours domestic cyclicals over defensives and externally facing sectors, with overweight positions in Financials, Consumer Discretionary and Industrials, and underweight positions in Energy, Materials, Utilities and Healthcare.

IT services could emerge as a dark horse as the world increasingly turns to these companies to build AI applications and solutions. India’s key risks are largely external, including geopolitical tensions and a slowing global economy. Domestic risks include weak farm productivity, capacity bottlenecks in the judiciary and the impact of embodied AI on labour markets.

Morgan Stanely’s bull and bear case

In the bull case, assigned a 25% probability, the Sensex could reach 100,000. This scenario assumes oil prices fall below US$75 a barrel, improving the terms of trade, while reflation policies begin to succeed and lead to higher growth estimates. Earnings growth is expected to compound at 19% annually over F2026-29.

In the bear case, also assigned a 25% probability, the Sensex could fall to 66,000. This scenario assumes oil prices average above $120 a barrel in the coming months, prompting the RBI to tighten policy to protect macroeconomic stability, while global growth slows meaningfully. Sensex earnings are expected to compound at 13% annually over F2025-28, with perceptibly lower growth in F2027, while equity multiples de-rate to reflect weaker macroeconomic conditions.

(This article has been written by Veer Sharma, who is not a SEBI-registered Research Analyst or an Investment Adviser. Veer Sharma and his relative(s) (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The EconomicTimes Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment.)