The revised target implies a 7.3 per cent upside from the current Sensex level of 27,916.
Morgan Stanley has upped its one-year 'base case' Sensex price target from 26,000 to 30,000.
India is among the top picks in the emerging market category for Morgan Stanley, which has a cautious view on global equities.
The revised target implies a 7.3 per cent upside from the current Sensex level of 27,916.
"The likely single-digit returns are consistent with the position of India as one of our top picks in EM equities and our cautious view on global equities, where we are expecting downside in the coming months," said strategist Ridham Desai and Sheela Rathi in a note.
The turn in earnings (profit) growth cycle, lower interest rates, reform momentum, and global liquidity are the key reasons for the brokerage's positive stance on India.
Morgan Stanley is forecasting a 16 per cent and 14 per cent compound growth in earnings for the Sensex and the broad market, respectively, over the next two years.
It expects another two rounds of interest rate cuts by March 2017.
"The reforms momentum is intact, but the growth cycle is likely to be U-shaped, given headwinds from global sources," Morgan Stanley said in a note titled Growth Oasis.
Besides global liquidity support, Morgan Stanley attributes the strength in the domestic rally to local flows.
"Indian equities appear to be seeing strong boost from rising domestic saving in equities," it said.
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