Sensex target 107,000 by 2026-end, says Morgan Stanley; markets set to ‘regain mojo’ for multi-year rebound

Indian equities may be poised for their strongest phase in years, with Morgan Stanley projecting the BSE Sensex could climb to 1,07,000 by December 2026 in its bull case, and 95,000 in its base case -- implying a potential 13 percent upside from current levels. The global brokerage said that after India’s sharp underperformance in 2025, the market is positioned for a broad recovery driven by macro tailwinds, policy easing and a renewed earnings cycle.

India is set to “regain its mojo” in 2026, shifting from a stock-picking market to a macro-driven trade, it said in an investors’ note. Foreign investors’ positioning is “the lightest in history,” relative valuations have normalised, and domestic fund flows remain structurally strong -- a combination that offers the bedrock for a multi-year rebound in equities, Morgan Stanley added.

Improving earnings cycle, GDP growth to support equities upside

India’s near-term upside rests on three pillars: an earnings cycle that remains in its middle phase; a decisive policy pivot toward reflation; and improving terms of trade. It expects Sensex earnings to grow 17-19 percent annually through FY28, supported by rising private investment, stronger bank balance sheets and broad-based nominal GDP growth of about 10-11 percent.

Morgan Stanley said that the rebound is the continuation of a longer structural reset underway in the economy. The report noted that inflation and growth volatility have fallen sharply due to sustained macro-stability reforms, fiscal consolidation, flexible inflation targeting and a fall in oil intensity. This is pushing India into a “virtuous cycle” of lower volatility, lower real rates and higher equity valuations.

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India's reduced dependence on foreign capital flows

A key element of this trajectory is the structural rise in domestic equity ownership, fuelled by household financialisation, policy changes allowing retirement funds to hold equities, and a steadily increasing global index weight for India. Together, these factors create a more reliable pool of risk capital and reduce India’s dependence on foreign flows, reinforcing the case for sustained market resilience.

Further, India is exiting its worst relative performance against emerging markets in three decades, aided by an aggressive policy shift. RBI rate cuts, CRR reduction, bank deregulation, liquidity infusion, GST and income-tax tweaks and public-sector capex have helped unwind the post-Covid hawkish macro environment. These measures set the stage for a period of stronger growth and more predictable earnings delivery in the years ahead.

Domestic demand-driven investment plays in favour

The brokerage’s sector stance remains decidedly tilted toward domestic demand and investment themes. It is overweight consumer discretionary, industrials and financials, neutral on technology, staples and communication services, and underweight energy, utilities, healthcare and materials. Its preferred portfolio includes companies such as Maruti, Titan, Trent, Varun Beverages, Reliance Industries, ICICI Bank, Bajaj Finance, L&T, UltraTech Cement and Coforge.

Risks to the outlook remain, particularly from global growth. Morgan Stanley warns that a US slowdown, an oil spike above US$100, renewed trade frictions or unfavourable global financial conditions could cap India’s upside. In its bear case, the Sensex could fall to 76,000 by end-2026. But it stresses that most risks emanate from outside India, while domestic fundamentals and policy dynamics continue to strengthen.

Morgan Stanley’s forecast comes just after Goldman Sachs upgraded India to ‘Overweight’ this month, citing stabilising earnings, an improving macro backdrop and record domestic inflows that absorbed heavy foreign selling through 2025. Goldman also expects India to re-emerge as one of the most resilient emerging-market stories, projecting the Nifty 50 at 29,000 by end-2026.

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