Morgan Stanley has made a significant adjustment to its projections for India’s Sensex, reflecting the uncertainty surrounding tariffs introduced during the Trump administration. The international brokerage firm has lowered its target for December 2025 by 12%, now setting it at 82,000. This adjustment indicates a potential 9% increase for the index from its current position, a stark contrast to the previous forecast of 93,000.
Downgrade Driven by Global Economic Concerns
In their latest assessment, Morgan Stanley highlights that the risks to India’s growth outlook are primarily tilted downwards. The report emphasizes that a deeper slowdown in global economic activity, combined with unpredictable global capital flows and currency volatility, could complicate policymakers’ efforts to stimulate growth.
India’s Resilience Amid Global Market Challenges
Despite the global market turmoil, India is standing out, largely due to its low beta status, which is contributing to a remarkable performance in comparison to other markets. However, the report does caution that the index could reach "multi-month lows" if the situation worsens.
Key Factors Supporting India’s Growth:
- Ongoing dovish policies from the Reserve Bank of India (RBI)
- Economic stimulus through reductions in GST rates
- Potential trade agreements with the United States
- Positive growth data on the horizon
Morgan Stanley projects a 13% decline in earnings estimates for FY26, primarily attributable to the international economic climate. Fortunately, domestic growth is expected to be buoyed by heightened government spending and supportive monetary policy from the RBI, suggesting that India’s medium-term earnings trajectory remains promising.
Strategic Stock Selection Will Be Crucial
Morgan Stanley has revised its sector model portfolio, reducing active positions from an average of 180 basis points to 80 basis points. This shift indicates a transition from a macro-driven market to one where targeted stock selection becomes essential for investment success.
The firm maintains an Overweight stance on sectors such as financials, consumer cyclicals, and industrials, while adopting an Underweight position in energy, materials, utilities, and healthcare. Additionally, Morgan Stanley is scaling back its preference for small and mid-cap stocks in favor of larger, more stable companies.
India’s Potential in Global Trade Dynamics
Looking ahead, Morgan Stanley believes that the earnings cycle in India is at a crucial midpoint. The report identifies several macroeconomic drivers of this earnings cycle:
- A nascent private capital expenditure cycle
- Increased leverage in corporate balance sheets
- A stable and robust banking sector
- Improved trade terms due to a higher share in global trade and reduced oil dependence in GDP
- An emerging trend of increased discretionary consumption
While there may be challenges related to fiscal consolidation, Morgan Stanley suggests that the ongoing global trade tensions could potentially benefit India by increasing its share in international goods trade. However, the firm has not yet integrated this anticipated advantage into its forecasts.
In conclusion, Morgan Stanley asserts that the trend in earnings growth is still trailing nominal GDP growth, indicating that there is potential for upward movement in the earnings cycle.
