Morgan Stanley's Ridham Desai Identifies 'Dark Horse' Potential Driver of India's Next Market Surge

Morgan Stanley Sees Indian Equities Recovering with 19 Percent Upside

Morgan Stanley, a leading global investment bank, is predicting a strong recovery for Indian equities in the coming years, with a target of 89,000 for the BSE Sensex by June 2027. This implies a 19 percent upside from current levels, according to a report by Financial Express.

The brokerage firm has assigned a 50 percent probability to its base-case scenario, which assumes macroeconomic stability, higher private investment, strong domestic growth, and lower oil prices than current levels. Ridham Desai, Managing Director at Morgan Stanley India, believes that India's earnings growth is likely to accelerate again, while valuations, sentiment, and foreign investor positioning have moved away from earlier extremes.

Morgan Stanley has also highlighted the potential of India's information technology services sector, which could emerge as a "dark horse" as global companies turn to Indian firms to build artificial intelligence applications and solutions. The brokerage firm has maintained an equal-weight view on Technology in its model portfolio but noted that the market may be underestimating the AI-related opportunity for Indian IT services companies.

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Earnings Cycle Turning Higher

Morgan Stanley believes that India is entering an earnings upcycle after a period of moderation, with earnings growth acceleration expected to continue for several quarters. The brokerage firm expects capital expenditure across energy, defence, semiconductors, fertilizers, and data centers to drive growth, with investments as a share of gross domestic product (GDP) expected to rise to 37.5 percent over the next five years.

Sector Preferences

Morgan Stanley continues to favor domestic cyclical sectors over defensives and externally linked sectors. The brokerage firm remains overweight on Financials, Consumer Discretionary, and Industrials, while being underweight on Energy, Healthcare, Utilities, and Materials. For Consumer Discretionary, Morgan Stanley expects consumption growth to benefit from lower interest rates, tax reductions, and improving income growth. For Industrials, private capital expenditure remains a key driver, with energy, mining, defence, fertilizers, semiconductors, and data centers among important areas of investment demand.

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India's Long-Term Growth Case

Morgan Stanley believes that India remains well placed to benefit from shifts in the global economy. The brokerage firm notes that India could be a "big gainer" in a multi-polar world, with the manufacturing share in GDP likely to rise in the coming decade. India's growing consumer base, rising incomes, and relatively young population are also seen as key drivers of growth.

Morgan Stanley expects Sensex earnings to compound at 16 percent annually through FY2029 under its base-case scenario. The brokerage firm's bull-case scenario places the Sensex at 1,00,000 by June 2027, while its bear-case scenario assumes a level of 66,000.