Sensex could surge 22 per cent to 95,000 by year-end: Morgan Stanley

India’s benchmark equity index could witness a sharp rally in the coming months, with the BSE Sensex projected to reach 95,000 by December 2026, according to a report by Morgan Stanley.

In its latest India equity strategy outlook, the global brokerage estimated an upside potential of around 22 per cent from current levels, suggesting that market conditions are turning favourable after a subdued phase.

The report highlighted that a combination of relatively low valuations, improving corporate earnings and cautious investor positioning typically signals the late stages of a market downturn, often preceding a recovery.

Morgan Stanley said downside risks appear limited compared with the potential for gains, describing the current environment as an attractive entry point for long-term investors.

It noted that Indian equities have underperformed over the past year, with relative valuations declining significantly. However, the broader economic backdrop remains supportive, underpinned by steady domestic demand, policy continuity and a revival in capital expenditure.

A key driver of the optimistic outlook is the expected rebound in earnings. High-frequency indicators point to strengthening trends across consumption, investment and services, even as market expectations remain relatively muted.

The brokerage also observed that India’s share in global corporate profits has risen beyond its representation in major indices, indicating underlying strength in earnings generation.

Foreign investor positioning, which has weakened in recent months, could add to market gains if earnings momentum accelerates, the report added.

On valuations, the brokerage pointed out that the Sensex is trading at comparatively low levels when assessed against gold — a long-term metric often associated with market turning points. Additionally, price-to-book valuations are near historical lows even as macroeconomic stability improves.

While acknowledging risks from global growth concerns and geopolitical tensions, Morgan Stanley maintained that the overall outlook suggests a sustained recovery in Indian equities.

However, a series of recent developments and analyst views suggest that the path ahead may be far from smooth.

Escalating geopolitical tensions in West Asia have already rattled markets, with crude oil prices surging above $100–110 per barrel amid disruptions linked to the Strait of Hormuz. These pressures triggered sharp sell-offs earlier this month, with the Sensex falling by over 1,300 points in a single session, reflecting heightened risk aversion.

Such events have led to sustained foreign investor outflows and sector-wide weakness, particularly in banking, IT and automobile stocks, with some market participants advocating a cautious “sell on rallies” approach.

Adding to the cautious sentiment, a recent Reuters poll found that a majority of analysts expect a correction of more than 10 per cent in Indian equities in the near term, citing elevated valuations, uneven earnings visibility and continued foreign institutional investor (FII) withdrawals.

India’s equity markets have also lagged several Asian peers in recent months, a shift attributed to persistent global uncertainties and capital outflows.

Market veterans such as Raamdeo Agrawal and Manish Chokhani have also flagged the likelihood of modest returns in 2026, pointing to challenges around earnings growth and dependence on policy support.

Further, technical indicators suggest caution. Banking stocks, a key driver of the broader market, have shown signs of consolidation, with analysts describing the near-term outlook as “sideways to bearish” amid weak momentum and key support levels being tested.

Concerns over inflation, currency pressures and fiscal uncertainties have added to the mixed outlook, even as steady domestic inflows through systematic investment plans (SIPs) continue to provide some support to the market.

Taken together, the contrasting signals highlight a market at a crossroads — supported by strong long-term fundamentals and earnings potential, yet vulnerable to external shocks and near-term volatility.

While the bullish case hinges on a sustained recovery in earnings and investor sentiment, the bearish view underscores the risks posed by global instability and structural market pressures, suggesting that any upward move may be uneven and accompanied by bouts of correction.

 With IANS inputs