Sensex to reach 93,000 by 2025-end in base case, predicts Morgan Stanley; bullish on India’s long-term growth

As the calendar turns to 2025, India’s equity market continues to maintain a positive trajectory, buoyed by strong fundamentals and a degree of insulation from global economic turbulence. Despite a 6 percent correction in Indian benchmarks such as the Sensex and Nifty, triggered by substantial foreign institutional investor (FII) sell-offs in October, Morgan Stanley remains optimistic about the country’s prospects. The brokerage underscores that India retains its position as “the market to beat,” supported by consistent government policy initiatives and robust macroeconomic indicators.

Morgan Stanley’s Strategy Outlook

Morgan Stanley’s 2025 India Strategy Outlook projects India as a leading performer among emerging markets, with the BSE Sensex expected to offer a 14 percent upside by December 2025. In its base case scenario, the firm anticipates the Sensex to reach 93,000, predicated on factors like fiscal discipline, sustained private investment, and a favorable differential between real growth and interest rates. This scenario envisions the Sensex trading at a trailing price-to-earnings (P/E) ratio of 23x, exceeding its 25-year average of 20x. Earnings under this case are projected to compound at 17 percent annually until FY27, supported by fiscal consolidation, robust retail investments, and a manageable equity supply.

Bull and Bear Scenarios

In a more optimistic bull case scenario, Morgan Stanley estimates the Sensex could climb to 1,05,000 by the end of 2025. Such a performance would require a confluence of favorable conditions, including oil prices remaining below USD 70 per barrel to mitigate inflationary pressures, further monetary easing by the Reserve Bank of India (RBI), and additional government reforms like GST rate cuts or progress in agricultural laws. Under this scenario, annual earnings growth is anticipated to accelerate to 20 percent over FY24-27.

Conversely, the brokerage outlines a bear case scenario in which the Sensex could decline to 70,000 by December 2025. This projection hinges on potential adverse developments such as elevated oil prices, a global economic slowdown, and tighter monetary policies by the RBI to safeguard macroeconomic stability. In this environment, India’s earnings growth could slow to 15 percent annually, reflecting weaker macroeconomic conditions and subdued investor sentiment.

Sectoral Preferences and Investment Opportunities

Sectoral preferences play a pivotal role in Morgan Stanley’s strategy for 2025. The brokerage advises a strategic shift toward cyclicals and small-to-mid-cap stocks. Financials, consumer discretionary, industrials, and technology are identified as sectors poised for robust performance, while energy, healthcare, and utilities are expected to lag.

The firm sees substantial opportunities in areas such as luxury retail and travel within consumer discretionary, green hydrogen and renewable energy in the industrials and energy segments, and IT services benefiting from global outsourcing trends. The focus list includes companies like Maruti Suzuki, Reliance Industries, ICICI Bank, SBI Life Insurance, and Infosys, reflecting Morgan Stanley’s conviction in these market leaders.

Macro Resilience Driving Optimism

India’s macroeconomic resilience forms the foundation of Morgan Stanley’s optimism. Fiscal consolidation, inflation targeting, and a positive real growth rate are viewed as critical factors driving economic stability. A declining primary deficit is expected to encourage private investments, thereby sustaining the ongoing growth cycle. Additionally, India’s equity market has shown reduced volatility and a lower beta compared to other emerging markets, a trend attributed to increasing domestic investor participation and a more stable economic framework, noted the brokerage.

Risks to Watch

While the outlook is undeniably strong, Morgan Stanley highlights several risks that could dampen the optimism surrounding India’s equity market. On the global front, challenges such as rising oil prices, geopolitical tensions, and a potential slowdown in global growth could weigh on earnings. Domestically, issues related to policy execution, judicial bottlenecks, and low agricultural productivity remain significant hurdles. These risks underscore the importance of vigilance as India navigates its growth trajectory.

Transformative Themes for Long-Term Growth

The long-term growth narrative is further strengthened by transformative themes reshaping India’s economy. A burgeoning middle class is expected to drive consumption in key sectors, while advancements in green energy and deep technology are set to position India as a global leader in these domains, believes Morgan Stanley. Moreover, the country’s increasing reliance on INR-based trade and expanding free trade agreements signal a strategic shift towards greater economic independence and integration into global markets.

A Compelling Equity Story for 2025 and Beyond

As India’s share in global GDP and market capitalization continues to rise, its equity story becomes increasingly compelling. With a focus on cyclicals, small-to-mid-cap stocks, and emerging investment themes, the market offers substantial opportunities for investors. However, careful navigation of potential risks will be crucial to maximizing returns. India’s equity market appears well-positioned to maintain its upward momentum and could once again outperform its emerging market peers, solidifying its reputation as a standout performer in the global investment landscape.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.