Earnings cycle revival, cheap valuations and strong domestic demand underpin bullish outlook

Mumbai

Globalbrokerage firm Morgan Stanley on Thursday said that Indian markets are poised for a strong rally with Sensex likely to touch 95,000 level by December 2026.

In its latest India Equity Strategy Playbook report, the brokerage firm said that the current combination of depressed valuations, improving earnings momentum and cautious investor positioning reflects conditions typically seen near the end of market downturns.

In the base case, the headline index Sensex is expected to touch the 95,000 mark by December 2026, implying an upside potential of 22 per cent from Wednesday's closing, according to the brokerage. It noted that downside risks appear limited compared to potential gains, describing the present phase as an attractive entry point for long-term investors.

The brokerage also pointed out that India’s trailing market performance over the past year is close to historic lows, while relative valuations have declined sharply.

However, underlying fundamentals remain strong, supported by robust domestic demand, policy stability and a recovery in capital expenditure. A major factor behind its bullish outlook is the revival in the earnings cycle. High-frequency indicators point to strengthening trends across consumption, investment and services, even as market expectations remain subdued, the brokerage noted.

Analysts also noted that India’s share of global corporate profits now exceeds its index weight by the widest margin on record.

The brokerage has expected positive earnings revisions going forward and said it remains ahead of consensus estimates. Foreign investor positioning -- which has weakened in recent months -- could further support an upside surprise if earnings momentum continues to improve. On valuations, Morgan Stanley pointed out that the Sensex is currently trading at its cheapest level when measured against gold, a long-term indicator often associated with major market turning points.