India's earnings peak still ahead due to GST reforms, macro fundamentals; strong case to re-rate: Report

New Delhi, Sep 1 (IANS) India's equity market might be underestimating the likely turn in its growth cycle, as the nation may be able to take a larger share of global output due to macro fundamentals and earnings recovery, a report said on Monday.

There is a strong case for re-rating India as it becomes the world’s most sought-after consumer market, it will undergo a major energy transition, credit to GDP will rise, and manufacturing could gain share in GDP, global investment bank and financial advisory firm, Morgan Stanley, said in a report.

There is a 50 per cent chance of BSE Sensex reaching 89,000 by June 2026, based on continued domestic growth, resolution of US tariffs, and easing by the RBI, and a 30 per cent probability that the Sensex may cross the 1 lakh mark by June 2026, the brokerage added.

Supporting a turn in growth is a dovish central bank, likely GST reforms, a good monsoon season, recovery in consumer confidence, thawing of relations with China, and likely improving capex, the firm noted.

Further, strong population growth, a stable democracy, and ongoing structural reforms are other positives for the giant economy, it said in the report.

Falling oil intensity in GDP, rising services exports, and fiscal consolidation indicate reduced savings imbalances, allowing for lower real interest rates and low inflation volatility.

Household savings are moving into stocks due to low volatility and interest rates, leading to higher P/E ratios, which support equity market outperformance.

When it comes to stock selection, Morgan Stanley prefers domestic cyclicals, with a focus on financials, consumer discretionary, and industrials, anticipating GST reforms, government capex and private capex to boost earnings.

India's GDP grew by 7.8 per cent in Q1 FY26, maintaining its status as the fastest-growing large economy, driven by services, manufacturing, and favourable monsoon conditions.

--IANS

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