Morgan Stanley sees Sensex at 89,000 by June 2026, upside potential of 8%

Brokerage cites strong macro stability, corporate releveraging, low-inflation volatility as strengths

The Sensex last traded half a per cent higher at 81,642. A report by the foreign brokerage identified strong fundamentals for domestic equities.

 

"Strong macro stability with improving terms of trade, declining primary deficit, and low-inflation volatility; 2) mid- to high-teens earnings growth annually over the next three to five years, led by an emerging private capex cycle, re-leveraging of corporate balance sheets, and a structural rise in discretionary consumption…,” said Morgan Stanley equity strategists Ridham Desai and Nayant Parekh said in a note.

 

“…3) a reliable source of domestic risk capital; 4) a dovish RBI (Reserve Bank of India); 5) ranged oil prices; 6) two positives from the recent geopolitical event: (i) India has a new doctrine on terror which makes future terror attacks an act of war, a strong deterrent to future terror strikes, also making it easy for future governments to act decisively against terror, unlike the past and, (ii) upside surprise in military performance underscoring strong progress made in strategy, air combat, navigation.” 

Morgan Stanley cited "technical supportive" factors such as persistent buying by retail investors, low volatility and foreign portfolio investors' weakest positioning since 2000.

 

 

In terms of portfolio strategy, Morgan Stanley prefers "domestic cyclicals" over *defensive and "external-facing" sectors. It is overweight financials, consumer discretionary, and industrials and underweight energy, materials, utilities and health care.

 

The brokerage acknowledged key risks, saying: "a global recession or near recession would challenge our call. Long-term concerns include capacity constraints in the judiciary, AI's effects on the tech industry, low productivity in the farm sector, and state-level fiscal challenges.