Indian equities set for re‑rating, Sensex could hit 1,07,000 by 2026-end in bull case, Morgan Stanley says

Morgan Stanley on Indian equities

• Morgan Stanley sees Indian stocks set for re-rating as macro environment eases
• RBI policies, reforms, and trade deals expected to boost growth and earnings
• Sensex could reach 1,07,000 by Dec 2026 in Morgan Stanley's bull case

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India's hawkish macro environment post-Covid 19 pandemic is now easing, and Indian stock markets are set for a re-rating, Morgan Stanley said in its latest report on February 6.

Reflation efforts by the RBI and government through rate cuts, bank deregulation and liquidity infusion, sustaining capital expenditure, tax cuts and relatively stimulating budget are set to accelerate India's growth cycle, Morgan Stanley's equity strategists Ridham Desai and Nayant Parekh said, adding that they see a sharp turn in earnings growth over the coming months.

"The trade deals and thawing of relations with China add to the mix," the report further said.

'Indian stocks enjoy a rare combination':

The analysts said that Indian stocks enjoy a rare combination of inexpensive relative valuations, poor trailing performance, strong policy stimulus and a consequent growth upcycle, an undervalued currency, weak foreign positioning and potentially a new buyback cycle.

They noted that Indian equities posted the worst trailing 12-month performance in history. As a result, relative valuations are moving towards previous troughs. "FPI positioning has weakened over the past four years and India could be a pain trade, which may just accelerate the returns on stocks. Top this with an undervalued currency. We expect more buybacks as a result of improved taxation regime and modest net flows into stocks (issuances minus buybacks)," they added.

Which are the key catalysts for strong growth?

Morgan Stanley listed out four key catalysts for strong growth.

• Growth signal: Morgan Stanley said it is ahead of the consensus view, and expects positive earnings revisions for Indian companies.
• RBI Policy: The analysts expected the central bank’s policy to support liquidity and loan growth. This came before the RBI’s MPC kept its repo rate unchanged on February 6 after a cumulative cut of 125 basis points since February 2025.
• Policy reforms: According to Morgan Stanley, several measures including privatization are likely underway.
• Foreign buying: After strong foreign selling for several months, FPI positioning remains near lows but net FPI buying will need growth to recover.

The global financial services company reiterated its Sensex targets for 2026. Morgan Stanley said BSE Sensex could climb to 1,07,000 by December 2026 in its bull case, and 95,000 in its base case. However, as part of its bear case, it sees Sensex falling to 76,000 by the end of the year.

Sensex gained nearly 266.5 points (0.32) percent to end the session at 83,580.40, while Nifty 50 rose around 51 points (0.20 percent) to close at 25,693.70 on February 6.

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