The recent correction in the Indian stock market from the September 2024 highs presents a compelling opportunity to invest in the country’s long-term growth story, according to global brokerage Morgan Stanley. While the firm has revised its base case Sensex target for June 2026, it also predicts the index reaching the 1,00,000 mark under its bull case scenario. 

In its latest outlook, Morgan Stanley has set the Sensex base case target of 89,000 by June 2026, reflecting an 8% upside from current levels. However, under its bull case scenario, which it assigns a 30% probability. 

This assumes sustained improvements in India’s macroeconomic stability through fiscal consolidation, rising private sector investment, and a positive real growth-real interest rate gap. A stable domestic growth outlook, absence of a US recession, and moderate oil prices are also factored into the forecast. 

In the bull case, Morgan Stanley envisions a more favourable macro and policy environment, leading to the Sensex reaching 1,00,000 by June 2026. 

Key assumptions include crude oil prices remaining consistently below $65 per barrel, allowing for further monetary easing by the RBI, and a resolution of global trade tensions through reversals in tariff policies. Additionally, unexpected policy reforms—such as GST rate cuts and progress on agricultural reforms—could provide further tailwinds. 

The report highlights that the current environment is likely to be a “stock pickers’ market”, diverging from the macro-driven rallies observed since the onset of the Covid-19 pandemic. 

The brokerage is overweight on Financials, Consumer Discretionary, and Industrials, while maintaining an underweight stance on Energy, Materials, Utilities, and Healthcare. 

However, What Can Go Wrong With Equities?

Morgan Stanley assigns a 20% probability to its bear case, in which the Sensex drops to 70,000 by June 2026.

This scenario assumes a sharp rise in crude oil prices above $100 per barrel, leading to monetary tightening by the RBI to maintain macroeconomic stability. It also factors in a significant global growth slowdown, including a recession in the US. Under these conditions, earnings growth is expected to moderate to 15% annually through FY28, with a noticeable deceleration in FY26. Equity valuations are also likely to compress in response to deteriorating macro fundamentals.

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