Morgan Stanley sees Sensex at 1 lakh in bull case by June 2026, trade deal and lower crude key to re-rating

Morgan Stanley sees Sensex at 1 lakh in bull case by June 2026, cites potential triggers for re-rating

Global brokerage Morgan Stanley on August 4 issued a positive note for Indian equity markets, stating that benchmark index Sensex can hit the key 1 lakh-mark by June 2026 in a bull case. The firm cited several potential triggers for the rally.

In the note titled 'India Equity Strategy Playbook', Morgan Stanley analysts Ridham Desai and Nayant Parekh said that there is a strong case for rerating of Indian stock markets. "Get ready for new highs in the months ahead," it said, while adding that India is likely to gain share in global output in the coming decades, driven by strong foundational factors. These include strong population growth, a functioning democracy, macro stability-influenced policy, better infrastructure, rising entrepreneurial class, and improving social outcomes.

Possible triggers for bull run:

A final trade deal with the US, more capex announcements, acceleration in loans, uniform improvement in high frequency data and improving trade with China were cited as the likely triggers for the possible massive growth.

Base case: Sensex hitting 89,000 by June 2026 (50% probability)

Morgan Stanley explained how it came to the possibility of Sensex hitting key milestones by June 2026. According to its 'Base case' scenario, which holds 50 percent probability, Sensex will hit an all time high of 89,000 by June 2026. "This level assumes continuation in India's gains in macro stability via fiscal consolidation, increased private investment, and a positive gap between real growth and real rates. Robust domestic growth, slow growth in the US but no recession, and benign oil prices are also part of our assumptions. In our base case, we also assume a benign India-US trade deal," it said.

Bull case: Sensex hitting 1,00,000 by June 2026 (30% probability)

In its 'Bull' case scenario, the international brokerage expects Sensex to cross the key Rs 1 lakh mark for the first time ever by June 2026. This holds 30 percent probability, according to the firm. It noted that the target may be achieved if oil prices are persistent below the $65-mark, which in turn would create better environment for trade, and prompt more rate cuts by the RBI. “The global trade war is curtailed by complete reversals in positions on tariffs, leading to improved growth prospects. Government reforms surprise to the upside with a slew of GST rate cuts and some progress on farm laws,’ it added, while explaining the context needed for the bull case to come true.

Bear case: Sensex dropping to 70,000 by June 2026 (20% probability)

However, Morgan Stanley also issued a ‘Bear’ case scenario, where Sensex drops to 70,000 by June 2026. This holds 20 percent probability, according to the international brokerage. “Oil prices surge past US$100/barrel, the RBI ends up tightening to protect macro stability, global growth slows meaningfully, and notably the US slips into recession. Sensex earnings compound at 15% annually over F2025-28 with perceptibly lower growth in F2026 and equity multiples de-rate to reflect poor macro conditions,” it said.

Morgan Stanley noted that it prefers domestic cyclicals over defensives and external-facing sectors. It added it remains overweight on financials, consumer discretionary and industrials, but underweight on energy, materials, utilities and healthcare. “This is likely to be a stock pickers' market, in contrast to one driven by top-down or macro factors, and thus we run an average active position of just 80bps. We are capitalization-agnostic,” it said.

According to the global brokerage, the period of soft earnings growth which started since Q2 FY25 may be over, but the market is not yet convinced. "Supporting a turn in growth is a dovish central bank but confidence in it may need better clarity on the external growth environment and GST rate rationalization," it said.

"While FPI portfolio positioning is at its weakest since the data started in 2000, our view remains that India’s low beta implies outperformance in a global bear market but underperformance in a bull market. Downside risks arise from slowing global growth and worsening geopolitics," the analysts noted.

They further said that the yield curve leads stock returns by about two months. The curve is rising and, at the margin, is bullish for equities. "The change in short-term interest rates leads stock returns by about nine months and is currently pointing to better equity returns," the note added.

Indian stock markets ended the session on a positive note, with Sensex rising more than 418 points (0.52 percent) to close at 81,018.72. The benchmark index had seen significant rally last year, almost crossing the key 86,000-mark in September 2024. However, it has significantly declined since then, declining nearly 5,000 points (around 6 percent) to current level.

Also read: Sensex settles 400 pts higher, Nifty above 24,700; rally in metal, auto shares among key factors behind market rebound

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