New Delhi: India’s equity markets are poised to deliver strong returns in the coming period, supported by attractive valuations, solid past performance, macroeconomic stability and a sustained growth cycle, according to a report released on Wednesday.
The MS Research report forecasts a 13 per cent upside in the BSE Sensex, projecting the benchmark index to reach 95,000 by December 2026, with a 50 per cent probability attached to this outcome.
The projection is based on expectations of continued fiscal consolidation, a pickup in private sector investment and a favourable gap between real economic growth and real interest rates. Under this base-case scenario, Sensex earnings are estimated to grow at a compounded annual rate of 17 per cent through FY2028.
The report noted that, for the first time in nearly five years, equity valuations appear attractive when compared with short-term interest rates, while the modified earnings yield gap indicates further upside potential for equities.
Sectorally, consumer discretionary stocks and industrials are expected to outperform, each gaining around 300 basis points, while financials could see an increase of about 200 basis points. These gains are likely to be driven by a recovery in urban demand, potential GST rate cuts, strong government capital expenditure, rising credit growth and subdued credit costs.
According to the report, a combination of high growth, low volatility and declining interest rates is encouraging households to allocate more savings toward equities. Improved macro stability and structural shifts in household balance sheets are also contributing to lower market beta.
Supportive policy actions, including repo rate cuts, cash reserve ratio reductions, bank deregulation and liquidity infusion, are expected to further accelerate India’s growth cycle and boost corporate earnings. Additional positives include front-loaded capital spending, GST rate cuts amounting to about Rs 1.5 trillion, easing tensions with China and Beijing’s push against economic “involution.”
While foreign portfolio investor (FPI) positioning remains near historic lows, the report noted that sustained net FPI inflows would depend on a revival in growth, moderation in global bull markets and increased corporate issuance. Potential downside risks include a slowdown in global growth and heightened geopolitical tensions.
With inputs from IANS