Sensex at 1,07,000 by 2026-end? Morgan Stanley says a re-rating may just be starting

Contents

Why Morgan Stanley believes Indian equities are entering a re-rating phase A rare mix of valuations, currency and positioning is in play Four catalysts Morgan Stanley says could drive the next leg of growth How markets reacted today to the bullish outlook Here’s what happened today and why traders reacted What this means for investor portfolios What to watch next as the re-rating story unfolds

Indian equities could be on the cusp of a structural re-rating, with the BSE Sensex potentially climbing to 1,07,000 by December 2026 in a bull-case scenario, according to Morgan Stanley. The global brokerage argues that a mix of easing macro conditions, policy support and improving earnings could reset valuations for Indian stocks over the next two years.

In its latest report dated February 6, Morgan Stanley said India’s previously hawkish macro environment following the Covid-19 period is now easing, creating conditions for a stronger growth cycle. The brokerage maintained a base-case Sensex target of 95,000 and a bear-case of 76,000 by 2026-end, underscoring that outcomes will still depend on earnings delivery and global conditions.

For investors, the message is less about short-term rallies and more about a potential medium-term shift in how Indian equities are priced relative to history and peers.

Why Morgan Stanley believes Indian equities are entering a re-rating phase

Morgan Stanley’s equity strategists Ridham Desai and Nayant Parekh said policy and macro tailwinds are aligning in India’s favour. They pointed to reflationary efforts through:

Rate cuts and liquidity infusion
Bank deregulation
Sustained government capital expenditure
Tax reductions and a supportive budget

These factors, they said, could accelerate India’s growth cycle and translate into stronger corporate earnings.

“The trade deals and thawing of relations with China add to the mix,” the report noted, highlighting an improving external backdrop alongside domestic policy support.

A re-rating, in market terms, typically occurs when investors are willing to pay higher valuation multiples due to better growth visibility and lower macro risk.

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A rare mix of valuations, currency and positioning is in play

Morgan Stanley said Indian stocks currently reflect an unusual combination of factors rarely seen together. According to the brokerage, equities show:

Relatively inexpensive valuations versus history
Weak trailing 12-month performance
Strong policy stimulus
An undervalued currency
Light foreign investor positioning
Potential for a new buyback cycle

The strategists noted that Indian equities recently recorded their worst trailing 12-month performance on record. As a result, relative valuations are approaching earlier trough levels.

“FPI positioning has weakened over the past four years and India could be a pain trade, which may just accelerate returns on stocks,” the analysts wrote. They added that a more favourable taxation regime could encourage buybacks, supporting prices.

Four catalysts Morgan Stanley says could drive the next leg of growth

The brokerage identified four triggers that could shape the market’s direction:

• Earnings upgrades:
Morgan Stanley expects positive earnings revisions and believes it is ahead of consensus on this view.

• RBI policy support:
Liquidity and loan growth are likely to remain supported. This comes after the RBI has already cut rates cumulatively in the recent cycle and now maintained a pause.

• Policy reforms:
Privatisation and structural reforms are seen as ongoing themes.

• Return of foreign flows:
FPI positioning remains near lows. A recovery in growth could attract overseas investors back.

Together, these factors could influence whether the Sensex moves toward the bull, base or bear case.

How markets reacted today to the bullish outlook

Indian markets ended modestly higher on February 6, even as global cues remained mixed.

Sensex rose 266.5 points (0.32%) to 83,580.40
Nifty 50 gained about 51 points (0.20%) to 25,693.70

The gains were measured rather than euphoric, suggesting investors are digesting the outlook rather than chasing momentum. Traders said positioning remains selective, with focus on earnings and policy signals.

Here’s what happened today and why traders reacted

Market participants reacted to a combination of:

Morgan Stanley’s re-rating thesis
Continued policy support signals
Stability in interest rates
Hope of earnings recovery
Expectations of foreign inflows returning

The reaction was constructive but cautious, reflecting that long-term targets do not guarantee near-term moves.

What this means for investor portfolios

For investors, the report reinforces a few themes:

Focus on earnings-driven stock selection
Preference for policy beneficiaries and cyclicals
Monitoring FPI flows closely
Using corrections to accumulate quality names

A re-rating environment can lift indices, but stock dispersion often remains high. Companies with strong balance sheets and earnings visibility tend to benefit more.