Stock market: Morgan Stanley sees strong case for re-rating, new highs soon
While FPI portfolio positioning is at its weakest since the data started in 2000, Morgan Stanley said India’s low beta implies outperformance in a global bear market but underperformance in a bull market.
- Aug 4, 2025,
- Updated Aug 4, 2025 4:30 PM IST
Ridham Desai and Nayant Parekh of Morgan Stanley in a fresh strategy note on Monday said domestic investors should get ready for the stock market to hit new highs in the months ahead. The re-rating of Indian equities is on the anvil for fundamental reasons, they said.
The Morgan Stanley analysts suggested a June 2026 target of 89,000 on the BSE Sensex, which implies an upside potential of 10 per cent from the prevailing level. This target suggests that the BSE Sensex would trade at a trailing P/E multiple of 23.5 times, ahead of the 25-year average of 21 times. The premium over the historical average reflects greater confidence in the medium-term growth cycle in India, India's lower beta, a higher terminal growth rate, and a predictable policy environment, the Morgan Stanley analysts said.
The Morgan Stanley analysts said they remain confident on India and ahead of consensus. The soft earnings growth patch that started with Q2 2025 seems to be ending but the market is probably not yet convinced, they said.
"Supporting a turn in growth is a dovish central bank but confidence in it may need better clarity on the external growth environment and GST rate rationalization. A final trade deal with the US, more capex announcements, acceleration in loans (we are already seeing activity in the corporate bond market), uniform improvement in high frequency data and improving trade with China could act as catalysts," they said. While FPI portfolio positioning is at its weakest since the data started in 2000, Morgan Stanley said India’s low beta implies outperformance in a global bear market but underperformance in a bull market.
In the bull case scenario, Morgan Stanley sees Sensex at 1,00,000. It sees the 30-pack index at 70,000 in the bear case scenario.
For Indian equities, downside risks arise from slowing global growth and worsening geopolitics.
Morgan Stanley prefers domestic cyclicals over defensives and external-facing sectors. It is overweight financials, consumer discretionary, and industrials, 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 80bp. We are capitalization-agnostic," it said.
Morgan Stanley said India is likely to gain share in global output in the coming decades, driven by strong foundational factors, including robust population growth, a functioning democracy, macro stability-influenced policy, better infrastructure, a rising entrepreneurial class, and improving social outcomes.
"The implications are that India will become the world’s most sought-after consumer market, it will undergo a major energy transition, credit to GDP will rise and manufacturing could gain share in GDP. The falling intensity of oil in GDP and rising share of exports in GDP, especially services, and fiscal consolidation imply a lower saving imbalance," it said.
This, the foreign brokerage said, will allow structurally lower real rates. At the same time, lower inflation volatility as a result of both supply-side and policy changes mean that volatility in interest rates and growth rates is likely falling in coming years.
"High growth with low volatility and falling interest rates and low beta = higher P/E. This also supports the shift in household balance sheets towards equity and appears in the equity market in the form of a sustained bid on stocks," Morgan Stanley said.
It feels that the low beta itself emanates from improved macro stability and the structural shifts in household balance sheet towards equities.
"Price action hides how much stocks have de-rated relative to long bonds and gold and how India is gaining share in global GDP," Morgan Stanley said.
Ridham Desai and Nayant Parekh of Morgan Stanley in a fresh strategy note on Monday said domestic investors should get ready for the stock market to hit new highs in the months ahead. The re-rating of Indian equities is on the anvil for fundamental reasons, they said.
The Morgan Stanley analysts suggested a June 2026 target of 89,000 on the BSE Sensex, which implies an upside potential of 10 per cent from the prevailing level. This target suggests that the BSE Sensex would trade at a trailing P/E multiple of 23.5 times, ahead of the 25-year average of 21 times. The premium over the historical average reflects greater confidence in the medium-term growth cycle in India, India's lower beta, a higher terminal growth rate, and a predictable policy environment, the Morgan Stanley analysts said.
The Morgan Stanley analysts said they remain confident on India and ahead of consensus. The soft earnings growth patch that started with Q2 2025 seems to be ending but the market is probably not yet convinced, they said.
"Supporting a turn in growth is a dovish central bank but confidence in it may need better clarity on the external growth environment and GST rate rationalization. A final trade deal with the US, more capex announcements, acceleration in loans (we are already seeing activity in the corporate bond market), uniform improvement in high frequency data and improving trade with China could act as catalysts," they said. While FPI portfolio positioning is at its weakest since the data started in 2000, Morgan Stanley said India’s low beta implies outperformance in a global bear market but underperformance in a bull market.
In the bull case scenario, Morgan Stanley sees Sensex at 1,00,000. It sees the 30-pack index at 70,000 in the bear case scenario.
For Indian equities, downside risks arise from slowing global growth and worsening geopolitics.
Morgan Stanley prefers domestic cyclicals over defensives and external-facing sectors. It is overweight financials, consumer discretionary, and industrials, 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 80bp. We are capitalization-agnostic," it said.
Morgan Stanley said India is likely to gain share in global output in the coming decades, driven by strong foundational factors, including robust population growth, a functioning democracy, macro stability-influenced policy, better infrastructure, a rising entrepreneurial class, and improving social outcomes.
"The implications are that India will become the world’s most sought-after consumer market, it will undergo a major energy transition, credit to GDP will rise and manufacturing could gain share in GDP. The falling intensity of oil in GDP and rising share of exports in GDP, especially services, and fiscal consolidation imply a lower saving imbalance," it said.
This, the foreign brokerage said, will allow structurally lower real rates. At the same time, lower inflation volatility as a result of both supply-side and policy changes mean that volatility in interest rates and growth rates is likely falling in coming years.
"High growth with low volatility and falling interest rates and low beta = higher P/E. This also supports the shift in household balance sheets towards equity and appears in the equity market in the form of a sustained bid on stocks," Morgan Stanley said.
It feels that the low beta itself emanates from improved macro stability and the structural shifts in household balance sheet towards equities.
"Price action hides how much stocks have de-rated relative to long bonds and gold and how India is gaining share in global GDP," Morgan Stanley said.