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The risk-reward for the Indian markets, Morgan Stanley said, is turning favourable.
At a time when the global markets, including India, have been on a steady downtrend in the backdrop of geopolitical concerns and Donald Trump's tariff-related threats, analysts at Morgan Stanley expect the Sensex to hit the 105,000 mark by December 2025 as their bull-case scenario for the index.
This translates into a rise of nearly 41 per cent from the current levels.
The risk-reward for the Indian markets, they said, is turning favourable, and see the Sensex at 93,000 levels by December 2025 -- up around 25 per cent from the current levels as their base case.
In a bear-case scenario, on the other hand, they expect the Sensex to slide nearly 6 per cent to 70,000 levels by December 2025.
Morgan Stanley's Sensex forecast 2025
Indian equity markets, wrote Ridham Desai, head of India research and India equity strategist at Morgan Stanley in a recent co-authored report with Upasana Chachra, Sheela Rathi, Nayant Parekh and Bani Gambhir, appear oversold and a stock pickers' market now seems to be unfolding.
For the markets to stage a recovery from here on, most crucial cue, according to Morgan Stanley, will likely be global factors, including US policy and global growth rates.
"A global recession or a near recession will challenge our call and keep the Indian equities off highs in 2025," Desai said.
Meanwhile, valuations, Morgan Stanley said, are the most attractive since Covid. This is likely to be a stock pickers' market, in contrast to one driven by top-down or macro factors since the Covid pandemic.
As a portfolio strategy, Desai remains bullish on cyclicals, defensives, smallcaps, midcaps and large-cap stocks.
Among sectors, Morgan Stanley has an overweight rating on financials, consumer discretionary, industrials and technology sectors.
Jubilant FoodWorks, Mahindra & Mahindra (M&M), Maruti Suzuki India, Trent, Bajaj Finance, ICICI Bank, Titan Company, Larsen & Toubro (L&T), Ultratech Cement and Infosys are the 10 stocks that Morgan Stanley remains overweight on in the Indian context.
Markets ignoring RBI's policy pivot
India, Morgan Stanley notes, will be the world's most sought after consumer market, and will undergo a major energy transition; credit to GDP will rise and manufacturing could gain share in GDP.
'The market has ignored the RBI's policy pivot, and a strong Budget from the government, among other positive developments since early February.
'India's low beta characteristic make it an ideal market for the uncertain macro environment that equities are dealing with. Importantly, our sentiment indicator is in strong buy territory,' Desai wrote.
Markets ripe for stock picking
Going forward, consumption recovery, Morgan Stanley believes, is expected to get broad-based as the income tax cuts propel urban demand, to support the buoyant trend in rural consumption levels.
Within investments, they see public and household capex driving growth, while private corporate capex recovers gradually.
The outlook for headline inflation, Morgan Stanley believes, hinges on food prices, (around 46 per cent of the CPI basket), which is expected to soften going ahead.
As a result, they expect inflation to be around 4.3 per cent YoY in fiscal year 2026-27 (FY27), lower than 4.9 per cent YoY in FY25.
'On the external front, we closely monitor developments on trade and tariff policies by the US government, alongside the strength in dollar, Fed's reaction function and global growth and financial conditions.
'On the domestic side,' Desai wrote. 'we track fiscal profligacy at the state level and/or any change in policy mix that would weigh on macro stability.'
Feature Presentation: Ashish Narsale/Rediff.com
