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Informist, Wednesday, Jan. 7, 2026

 

--Morgan Stanley: Expect sharp turn in earnings growth over coming months 

--Morgan Stanley: India growth cycle to improve on interest rate, tax cuts 

--Morgan Stanley: India's hawkish macro set up post-Covid is now unwinding 

--Morgan Stanley: Union Budget could contain capital market reforms 

 

MUMBAI – Global brokerage firm Morgan Stanley expects a sharp turn in earnings growth of India Inc. over the coming months. The interest rate and income tax cuts are expected to aid India's growth cycle, the brokerage said in its India Strategy report. Moreover, front-loading of capital expenditure and nearly INR 1.5 trillion in savings from the GST rate cuts are seen helping the growth story, according to the brokerage. 

 

Easing ties with China and the recent anti-involution strategy by the latter are seen adding to the positives, Morgan Stanley said. India's hawkish macroeconomic set up after the COVID-19 pandemic is said to be unwinding now. Several policy reforms, including privatisation, have likely started and the brokerage expects the Union Budget for 2026-27 (Apr-Mar) to also lead to reforms in the capital market.

 

Morgan Stanley has set a target of 95000 points for the BSE Sensex through December, which implies an upside potential of nearly 12% from the index's close on Tuesday. The target suggests a trailing price-to-earnings multiple of 23.5 times, ahead of the 25-year average of 22 times, the brokerage said. This premium over the historical average shows greater confidence in India's growth cycle in the medium term. 

 

The brokerage's base case for the Sensex target is supported by continued gains from stability in macroeconomic factors through rate cuts, increased private investment, and a positive gap between real growth and real rates. "Robust domestic growth, steady global growth and benign oil prices are also part of our assumptions," Morgan Stanley said.

 

It anticipates India and the US to solve the tariff situation in the weeks ahead. "We assume a positive liquidity environment as the base case for monetary policy," it said. The earnings of Sensex companies are seen growing at a compounded annual rate of 17% through FY28, the brokerage said.
 

In a bull case, crude oil prices persistently below $60 per barrel, positive results from changes in monetary policy, and easing global trade war on the tariffs front may help boost the growth outlook for the Sensex. The target for the index is set at 107000 points in the brokerage firm's bull case. In this, the earnings growth is seen at a compounded annual rate of 19% over FY25–28.

 

On the other hand, if there is a spike in crude oil prices past $90 per barrel and the Reserve Bank of India ends up tightening monetary policy to protect macroeconomic stability, it may impact growth prospects. A meaningful slowdown in global growth, with the US slipping into recession and if there is a further deterioration of trade between India and the US, may also affect the returns, according to the brokerage's bear case. In this case, the brokerage sees the Sensex testing 76000 points with earnings growth seen at a edcompound annual rate of 15% over FY25-28. 

 

Going ahead, Indian equities are poised for "strong" returns, given "the yield curve is steepening, the money multiplier is rising,
nominal growth is rising relative to nominal rates and the INR (rupee) appears undervalued," Morgan Stanley said. "FPI (foreign portfolio investors) positioning has weakened over the past four years, and India could be a pain trade (in 2026) that may just accelerate the returns on stocks," it said. FPI positioning in India remains near low levels and this to turn into net buying would need growth to recover or bull markets elsewhere to fade, the brokerage firm said. 

 

While Morgan Stanley is overweight on financials, consumer discretionary, and industrials sectors, it is underweight on energy,
materials, utilities, and healthcare.  End

 

Reported by Simran Rede

Edited by Avishek Dutta

 

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