“Morgan Stanley predicts a 50% chance that India’s Sensex could hit 95,000 by 2026—but warns of factors that could stall the rally.”

As the countdown to the new year begins, Morgan Stanley is optimistic about the prospects for Indian markets in 2026. The firm expects a strong bounce in Indian stocks over the next 12 months. According to Morgan Stanley’s projections, if the ongoing policy shift continues at pace, there is a 50% probability of the Sensex reaching 95,000 by December 2026. Morgan Stanley India’s Managing Director and Equity Strategist, Ridham Desai, said, “The long-term story is gaining strength with government policy action – cyclical recovery is supported by the policy pivot. The biggest risks to our views come from outside India.” Morgan Stanley on India: Strong bounce-back ahead Morgan Stanley said, “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.” In the report, Ridham Desai highlighted that, “Relative valuations are consistent with improved forward performance. FPI exposure remains the lowest in history. Structural domestic demand is intact. India’s long-term story has been reinforced with a series of reforms. As a result, Indian equities appear poised to reverse their worst performance relative to emerging markets in 31 years.” Morgan Stanley on India: Sensex could reach 95,000 by December 2026, 50% probability The report outlines three possible scenarios for the market going forward. Morgan Stanley said there is a 50% chance of the base case scenario playing out. In this scenario, the Sensex could rise to 95,000 by December 2026, implying roughly 13% upside from current levels. This assumption depends on several factors: macro stability, stronger private investment, a positive gap between real growth and real rates, steady global conditions, and manageable oil prices. The firm also expects one more 25-basis-point rate cut in the current quarter, a supportive liquidity environment, and no heavy clustering of new equity issuances. According to Morgan Stanley’s projections, Sensex earnings are expected to grow at 17% annually through FY28, while nominal GDP growth is expected to average 10–11% over the next five years. Trend earnings are still lagging nominal GDP, leaving room for catch-up – the earnings leg that the firm believes will push the index toward the target. Morgan Stanley: Three possible scenarios for the Sensex by 2026 Morgan Stanley’s latest report presents three scenarios for the Indian stock market: Base case – 50% probability: The Sensex could reach 95,000 by December 2026, around 13% higher than current levels. The implied trailing P/E is ~23.5x, slightly above the long-term average of 22x. This scenario is plausible if inflation remains steady, policy is consistent, macro stability is maintained, private investment strengthens, global conditions remain stable, and oil prices are manageable. The report also expects one more 25-basis-point rate cut in the current quarter. Bull case – 30% probability: If conditions become more favorable, Morgan Stanley’s bull case sees the Sensex reaching 1,07,000. This assumes oil below $65, a calmer global trade environment, and stronger results from reflationary policies. Under this scenario, earnings are expected to grow nearly 19% per year between FY25 and FY28. Bear case – 20% probability: If crude oil rises above $100, RBI implements forced tightening, the global slowdown deepens, and the US enters a recession, the Sensex could drop to 76,000. Earnings are projected to grow ~15% annually in this scenario, although valuation multiples would contract. Morgan Stanley’s analysis suggests that India’s long-term equity fundamentals remain strong, and earnings growth will play a key role in pushing the Sensex toward its projected targets.