New Delhi [India], April 9 (ANI): Indian markets may be on the cusp of a significant upcycle, supported by improving macro fundamentals, earnings momentum, and policy support, noted a report by Morgan Stanley.

The global financial services firm has projected a strong recovery in Indian equities in its latest India Equity Strategy Playbook.

The report notes that 'trailing performance, valuations, positioning and earnings all support a major recovery in Indian stocks over the coming months,' adding that the market 'appears set up for a big move' after a period of weak returns and compressed valuations.

The brokerage has set a Sensex target of 95,000 by December 2026, implying a potential upside of about 22 per cent from current levels. It said this reflects 'greater confidence in the medium-term growth cycle in India... and a predictable policy environment.'

It added that, in the bull case, if crude falls below USD 70 a barrel, the Sensex may touch the 1,07,000 level, while in the bear case, if crude stabilises at USD 100, it may settle at around 76,000.

The base case scenario assumes continued macro stability, rising private investment, and steady global growth, with Sensex earnings expected to compound at around 17 per cent annually through FY28.

According to the report, Indian equities are currently trading at historically attractive levels, with relative valuations at previous troughs, and the Sensex is near its cheapest-ever levels in gold terms. It also highlighted that India's share in global profit pools exceeds its index weight by the widest margin on record, pointing to structural strength in corporate earnings.

Morgan Stanley expects the earnings cycle to strengthen, stating that 'it seems the earnings upcycle has resumed,' supported by high-frequency indicators, even as some temporary disruptions were seen due to geopolitical tensions.

However, the report flagged key risks, including a global growth slowdown and geopolitical tensions. It noted that 'downside risks arise from slowing global growth and worsening geopolitics,' while supply-side disruptions from conflicts could impact sectors like energy and fertilisers in the near term.

On sectoral strategy, Morgan Stanley prefers domestic cyclicals over defensives, with an overweight stance on financials, consumer discretionary, and industrials, while remaining underweight on energy, materials, and healthcare.

Overall, the report underscores a constructive outlook for India, backed by strong domestic demand, policy momentum, and improving earnings visibility, even as global uncertainties remain a key monitorable. (ANI)