Sensex may hit 1,07,000 by end-2026 after weakest three-decade run, says Morgan Stanley

Indian equities could enter a sharp recovery phase over the next year, with the Sensex potentially climbing to 1,07,000 by December 2026, global brokerage Morgan Stanley said in its latest outlook. The forecast comes as the market ends its weakest relative performance against emerging markets in 31 years. The brokerage said India’s “worst underperformance in three decades” is now behind it, and improving macro stability, supportive policies and firmer earnings growth will drive a rebound through 2026.

What is driving the turnaround?

Morgan Stanley said recent policy decisions have strengthened confidence in India’s long-term growth story. A shift towards pro-investment measures and clearer signals on fiscal consolidation are expected to lift nominal growth and support corporate earnings after months of mid-cycle softness.

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The report noted that foreign portfolio investors currently hold “the lightest exposure to India in history”, while domestic institutional inflows remain strong - a combination that could amplify the rebound once global volatility eases.

Relative valuations, which had surged earlier this year, have now corrected sharply and may have bottomed out in October, the brokerage added.

Base Case: ​13% upside by December 2026

Under its base-case scenario, Morgan Stanley sees a 13 per cent rise in the Sensex by end-2026, supported by macro stability, steady domestic demand, a revival in private investment and favourable crude oil prices.

The outlook factors in a 25-basis-point rate cut, a liquidity-friendly environment and progress on resolving India–US tariff issues in the coming weeks.

The brokerage projects a 17 per cent compound annual growth rate (CAGR) in Sensex earnings through FY28, helped by front-loaded public capex and the impact of recent GST rationalisation measures favouring mass consumption.

Risks remain global, not domestic

Morgan Stanley warned that the biggest risk to its outlook is a global slowdown, which could cap absolute gains even if India continues to outperform on a relative basis. The lack of explicit AI-linked trades, delays in the India–US trade deal and elevated valuations earlier in the year also contributed to recent volatility.

The report added that thawing relations with China, China’s “anti-involution” policies and a likely India–US trade deal could support sentiment in 2026.