India’s equity markets are expected to offer strong returns in the coming years, driven by attractive valuations, past performance, macroeconomic stability, and the ongoing growth cycle. A recent report by MS Research forecasts a potential 13% increase for BSE Sensex, reaching 95,000 by December 2026 with a 50% probability. The report is based on assumptions of sustained fiscal discipline, increased private investments, and a positive differential between real growth and real interest rates supporting the Sensex target.
Sensex earnings are anticipated to grow at a compounded rate of 17% annually until fiscal 2028. The report highlights that current equity valuations are favorable compared to short-term interest rates, indicating a potential upside for equities. Consumer discretionary and industrial sectors are expected to see significant growth, with a predicted surge of 300 basis points, while financials are projected to rise by 200 basis points. This growth is attributed to recovering urban demand, GST rate reductions, strong government spending, increasing credit availability, and low credit expenses.
The report also notes a trend of high growth coupled with low volatility, declining interest rates, and low beta, which is encouraging households to shift towards equity investments. This shift is supported by improved macroeconomic stability and changing investment patterns among households. Policy measures such as repo rate cuts, bank deregulation, and liquidity injections are expected to boost India’s economic growth and corporate earnings. Additionally, factors like increased capital expenditure, GST rate adjustments, and positive developments in India-China relations are seen as favorable tailwinds for the market.
Despite foreign portfolio investors (FPI) positioning being relatively low, the report suggests that a recovery in growth, a slowdown in global markets, and changes in geopolitical dynamics could impact FPI buying behavior. The report also highlights potential risks from global economic deceleration and geopolitical tensions, emphasizing the importance of external factors on India’s market performance.
