MUMBAI: The Wall Street major Morgan Stanley has said the country’s hawkish macro environment after the pandemic is now easing, with stock markets set for a re-rating. It sees the benchmark Sensex at 1,07,000 by this December in a bull case scenario, 95,000 in base case and 76,000 in a bear rally.
The Sensex is at 83,580 after a sharp fall of over 2% spooked by the record government borrowing of Rs 17.2 trillion and more than doubling of the taxes on futures and options to 0.05% from 0.02% earlier.
This bullish note comes after foreign funds ripped the market of $19 billion in 2025 and another $4 billion so far this year.
Reflation efforts by the Reserve Bank and the government through rate cuts (125 bps so far since last February), bank deregulation and liquidity infusion, sustaining capital expenditure, tax cuts and relatively stimulating budget are set to accelerate the growth cycle, Morgan Stanley's equity strategists Ridham Desai and Nayant Parekh said in a note Friday, adding they see a sharp turn in earnings growth over the coming months.
"The trade deals and thawing of relations with China add to the booster mix," they said, adding, “Dalal Street enjoys a rare combination of inexpensive relative valuations, poor trailing performance, strong policy stimulus and a consequent growth upcycle, an undervalued currency, weak foreign positioning and potentially a new buyback cycle.”
They noted that equities posted the worst trailing 12-month performance in history in 2025. As a result, relative valuations are moving towards previous troughs.
"FPI positioning has weakened over the past four years and the country could be a pain trade, which may just accelerate the returns on stocks. Top this with an undervalued currency. We expect more buybacks as a result of improved taxation regime and modest net flows into stocks," they said.
Listing out the key four catalysts for strong growth, Morgan Stanley noted the strong growth of the economy despite the tariff pains, saying it is set to close the fiscal at 7.4%.
The brokerage admits it is ahead of the consensus view, but expects positive earnings revisions for Indian companies.
Another key catalyst is the RBI policy which is all growth supportive of liquidity and loan growth.
Another booster is the policy reforms, with several measures including privatization likely to get underway.