MUMBAI: Dalal Street is on course to begin a multi-year rebound soon, regaining the mojo it has lost since September 2024 when the bellwether had hit the life-time high of 85,978.25, taking the Sensex past the 1,00,000-mark-mount by next December. And if the Wall Street major Morgan Stanley is to be believed, the benchmark index is poised to close next year at 1,07,000.
Stating that the changed positioning of foreign investors which is at the lowest now, continuing domestic fund flows, and normalised valuations-- all offer the foundation for a multi-year rebound, Morgan Stanley said in a note on Tuesday that the domestic “market is set to its regain mojo” in 2026.
If the bull scenario happens then the domestic equities are poised for their strongest phase in years, Morgan Stanley said, projecting the Sensex climbing to 1,07,000 by end December 2026, and at 95,000 in its base case, implying a 13% upside from current levels for the benchmark.
The brokerage major further said after the country’s sharp underperformance in 2025 lagging all its peers so far, the market is positioned for a broad recovery driven by macro tailwinds, policy easing and a renewed earnings cycle, shifting from a stock-picking market to a macro-driven trade.
“Foreign investors positioning,” who no longer are the largest owners of the market with their share falling to 17 percent in the September quarter, falling below the domestic institutional holding of close to 18 percent for the first time, the report said, “is the lightest in history now,” while relative valuations have normalised, and domestic fund flows remain structurally strong--a combination that offers the bedrock for a multi-year rebound.
Morgan Stanley, it may be noted, is the second Wall Street major after rival Goldman Sachs, pumping up the market targets now. Last week Goldman had pegged its Nifty target at 29,000 by next December, upgrading the domestic market to “overweight” citing the strong macros and corporate earnings, despite being the laggard among emerging markets in 2025 so far, and reversing its October 2024 downgrade, saying “Dalal Street is on course to re-emerge as one of the most resilient growth stories, with Nifty scaling the 29,000-mount by December 2026.”
Accordingly, Goldman placed India at the top of its Asian allocations, and has urged investors to align their portfolios with domestic-demand and policy-beneficiary themes. The brokerage had in October downgraded the country citing its “worst relative underperformance” in two decades.
However, now is not just a likely catch-up after a year of heavy foreign outflows and earnings downgrades, but based on renewed macroeconomic and corporate strength, the brokerage said in a note Monday. Goldman sees MSCI India profit growth of 14 percent in 2026, up from 10% this year, underpinned by nominal GDP growth of about 11 percent. All this has the company upping the Nifty target to 29,000 by December, implying a 14 percent upside from the current levels.
Morgan Stanley said the “rebound is the continuation of a longer structural reset underway in the economy” noting that inflation and growth volatility have fallen sharply due to sustained macro-stability reforms, fiscal consolidation, flexible inflation targeting and a fall in oil intensity.
“This is pushing India into a virtuous cycle of lower volatility, lower real rates and higher equity valuations,” it said, adding a a key element of this projected trajectory is the structural rise in domestic equity ownership, fuelled by increasing household financialisation, policy changes allowing retirement funds to hold equities, and a steadily increasing global index weight for India.
Together, these factors create a more reliable pool of risk capital and reduce the country’s dependence on foreign flows, reinforcing the case for sustained market resilience, it said, expecting the Sensex earnings to grow 17-19 percent annually through FY28, supported by rising private investment, stronger bank balance sheets and broad-based nominal GDP growth of about 10-11 percent.
Goldman had cited the country’s near-term upside onto three pillars: an earnings cycle that remains in its middle phase; a decisive policy pivot towards reflation; and improving the terms of trade. At 23 times forward earnings, domestic equities remain the most expensive in emerging markets, yet brokerages consider valuations defensible--projecting only a 5% base-case de-rating over the next two years. Key risks include a slower-than-expected earnings recovery, external shocks, or renewed investor rotation into North Asia if AI-linked momentum strengthens.
Another reason for the upgrade is that according to Goldman is that, the country’s valuation premium has narrowed sharply this year, foreign investors have sold $30 billion worth of equities, and mutual fund allocations are near two-decadal lows. This has left the market under-owned, even as domestic institutions-- with inflows exceeding $70 billion so far this year-- absorbed record equity issuance.