Sensex May Hit 105,000 by December 2025, But Recession Remains a Risk: Morgan Stanley

Morgan Stanley expects a strong upside for the Indian stock market despite global uncertainties. The financial services giant predicts that the Sensex could rise to 105,000 by December 2025 in a bull-case scenario, marking a 41% increase from current levels. However, its base-case estimate places the Sensex at 93,000, reflecting a 25% growth. In a worst-case (bear) scenario, the index could decline 6% to 70,000 due to economic challenges.

Indian Market Outlook: Opportunities and Risks

Morgan Stanley believe that Indian markets are oversold and now favor stock pickers. The outlook will largely depend on global factors, including U.S. policies, global economic growth, and recession risks.

Despite ongoing geopolitical tensions and Donald Trump’s tariff threats, Indian markets are expected to recover. However, a global recession or near-recession could prevent Indian equities from reaching new highs in 2025.

Market Valuations and Investment Strategy

Morgan Stanley highlights that current market valuations are the most attractive since the COVID-19 pandemic. Unlike previous market cycles driven by macroeconomic trends, this phase is expected to be a stock pickers’ market, where selecting the right stocks will be crucial.

Sector Preferences:

Bullish on: Financials, consumer discretionary, industrials, and technology.

Preferred stocks: Jubilant FoodWorks, Mahindra & Mahindra (M&M), Maruti Suzuki India, Trent, Bajaj Finance, ICICI Bank, Titan Company, Larsen & Toubro (L&T), Ultratech Cement, and Infosys.

RBI’s Policy Pivot and Market Response

Morgan Stanley points out that the Indian stock market has overlooked key positive developments like the RBI’s monetary policy shifts and a strong Union Budget. India’s low beta characteristic makes it a stable choice amid global uncertainty, and sentiment indicators suggest a strong buying opportunity.

Economic Growth and Consumption Recovery

India is set to become one of the world’s most sought-after consumer markets, with major changes in energy, credit expansion, and manufacturing. Consumption recovery is expected to gain momentum, fueled by income tax cuts, rising urban demand, and steady rural consumption growth.

Investment growth will be led by:

1. Government and household capital expenditure (capex)

2. Gradual recovery in private corporate capex

Inflation and Monetary Policy Outlook

Morgan Stanley predicts inflation to moderate, with consumer price index (CPI) inflation dropping to 4.3% in FY27 from 4.9% in FY25. Food prices, which account for 46% of the CPI basket, will be the key driver of inflation trends.

Monetary policy is expected to remain supportive of growth, with the RBI focusing on:

Interest rate cuts

Liquidity injections

Regulatory easing

The recent rollback of the 25-percentage-point increase in risk weights for bank loans to NBFCs is expected to boost liquidity for non-bank lenders and end borrowers.

External Challenges: Trade Tensions and U.S. Policies

Global trade dynamics will remain a concern, particularly with U.S. trade and tariff policies, dollar strength, and the Federal Reserve’s actions. However, India is less exposed to global trade risks due to:

Low dependence on goods exports

Strong growth in services exports

Policy support for domestic demand

Growth Indicators and Market Recovery

Despite global uncertainties, Morgan Stanley sees green shoots of economic recovery. Key indicators supporting this outlook include:

GST revenue growth of 12.6% in Jan-Feb 2025, up from 8.3%-8.9% in the previous two quarters.

FMCG sector recovery, with rural volume growth rebounding.

Private consumption growth at 6.9% in Q4 2024.

Government capex spending, easing monetary policies, lower food inflation, and improved services exports are expected to drive further recovery in the coming months.

Conclusion

While global recession risks remain, India’s economic fundamentals are strong. The Sensex could reach 105,000 if global conditions remain favorable, but challenges like trade tensions and U.S. policy shifts need to be monitored. Investors are advised to focus on strong sectors and stock-specific opportunities as India moves into a stock pickers’ market phase.