MUMBAI: Despite the continuing bloodbath in the market amid tariff woes, Wall Street major Morgan Stanley has pegged the benchmark Sensex at the 1-lakh-mark by July 2026 in a bull case scenario, which has a 30% probability, citing several triggers for the potential rally.
But in a bear case scenario, with a probability of 20%, the Sensex may plunge to 70,000 by July 2026, while in a base case scenario, the index may scale to 89,000, with a 50% probability.
The Sensex is massively down from the all-time peak of 85,978.25 it gained in the last week of September 2024 and after bleeding for five days, it closed with 0.52% at 81,019 on Monday.
Morgan Stanley’s analysts Ridham Desai and Nayant Parekh said on Monday that there is a strong case for rerating of the domestic stock markets. "Get ready for new highs in the months ahead," they said noting that the country is likely to gain more share in global output in the coming decades, driven by strong foundational factors. These include strong population growth, a functioning democracy, macro stability-influenced policy boosts, better infrastructure, rising entrepreneurial class, and improving social outcomes.
Immediate triggers for a rally are a favourable trade deal with the US, more capex announcements, bank credit growth, uniform improvement in high frequency data and improving trade with China.
Explaining how they came to the possibility of the Sensex hitting the key milestone of 1,00,000 by next July, they said in the ‘base case' scenario, which has 50% probability, it will hit an all-time high of 89,000 by July.
"This level assumes continuation in the country’s gains in macro stability via fiscal consolidation, increased private investments, and a positive gap between real growth and real rates. Robust domestic growth, slow growth in the US but no recession, and benign oil prices are also part of our assumptions. In our base case, we also assume a benign trade deal with the US," they added.
Giving a 30% chance of a bull case when the Sensex may be at 1,00,000 by next July, they said this scenario will be possible if oil prices are below the $65-mark, which in turn would create better environment for trade, and goad more rate cuts by the central bank.
“The global trade war is curtailed by complete reversals in positions on tariffs, leading to improved growth prospects. Government reforms surprise to the upside with a slew of GST rate cuts and some progress on farm laws,” they added.
On the other hand, in a bear case scenario, the Sensex may plunge to 70,000 by July, which will be primarily driven by oil prices surging past $100/barrel, the RBI beginning tightening to protect macro stability, and global growth slowing meaningfully with the US slipping into a recession.
Morgan Stanley also noted that it prefers domestic cyclicals over defensives and external-facing sectors and remains overweight on financials, consumer discretionary and industrials, but underweight on 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, and thus we run an average active position of just 80 bps. We are capitalization-agnostic,” the brokerage said.
The period of soft earnings growth which started since Q2FY25 may be over now, but the market is not yet convinced. Supporting a turn in growth is a dovish RBI but confidence in it may need better clarity on the external growth environment and GST rate rationalization, they said.
"While FPI portfolio positioning is at its weakest since the data started in 2000, our view remains that India’s low beta implies outperformance in a global bear market but underperformance in a bull market. Downside risks arise from slowing global growth and worsening geopolitics," the analysts noted.