Can Sensex hit 1 lakh in 1 year? Morgan Stanley gives new target

While describing the drawdown in Indian stocks from September 2024 high as an opportunity to buy India's long-term story, global brokerage firm Morgan Stanley has given a new target of 89,000 for Sensex by June 2026 in its base case scenario. And in the bull case scenario, of which there is a 30% probability, the brokerage says the headline index can hit 1 lakh as well.

"Our new Sensex June 2026 target of 89,000 (8% upside) bakes in our new earnings estimates and is also rolled forward from the December 2025 target of 82,000," Morgan Stanley's equity strategist Ridham Desai said, adding that this level suggests that the Sensex would trade at a trailing P/E multiple of 23.5x, ahead of the 25-year average of 21x.

The premium over the historical average reflects greater confidence in the medium-term growth cycle in India, India's lower beta, a higher terminal growth rate, and a predictable policy environment.

In the latest equity strategy note, Morgan Stanley has built in a 50% chance of Sensex hitting 89,000 (base case scenario) assuming robust domestic growth, slow growth in the US but no recession, benign oil prices.

"In our base case, we also assume a benign IndiaUS trade deal. We use another 50bps reduction in short-term interest rates and a positive liquidity environment as the base case for monetary policy. We do not anticipate a bunching of issuances, and the retail bid keeps its nose ahead of the supply. Sensex earnings compound at 16.8% annually through F2028," it said.

For Sensex to hit 1 lakh in the next 12 months, oil prices need to remain persistently below the $65, GST rate cuts, progress on farm laws, earnings growth CAGR at 19% and relief from global trade war.

"Despite all the events of the past two months, Indian stocks remained orderly even when they declined with limited increase in implied volumes. Persistent retail buying underpins its structural nature. Foreign portfolios positioning is the weakest since we have had the data in 2000 and there are signs that their view on India is shifting," Desai said.

As far as the portfolio strategy in India is concerned, the brokerage is overweight financials, consumer discretionary, and industrials; underweight 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 since the Covid pandemic. Thus, our average active sector position is just 80bps. We are capitalization-agnostic," he said.

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