Blasé Capital BULLYING AHEAD

Every few months these days, as the Indian equities and indices struggle with their directions and journeys, and fluctuate wildly, experts and analysts come up with new narratives to predict a new bull run, or a demise. Last year, Morgan Stanley re-rated the Sensex, and predicted its rise to 1,07,000, or 25-30 per cent gain, by 2026 over its then-existing level. The ostensible reasons were a positive reversal in corporate earnings, lower valuations, local interest in equities, and a possible change in outlook among the foreign investors. Since then, the Sensex has heaved and weaved, gone up and down, and that by 1,000-2,000 points in a single trading session, and settled lower than what it was at the end of October 2025. It did inch towards 86,000, and is now lower than 83,600. However, in the past 12 months, the index has gained more than 6,000 points, or eight per cent higher, and it was up almost 4,000 points in the past six months, or five per cent higher.

So now, Morgan Stanley has woven a new narrative, comparing Sensex and equities in terms of gold prices, and reached the same conclusion. The Sensex is predicted to be 1,07,000 by the end of 2026. First, the brokerage house tracks the Sensex in terms of gold ounces, and traces the troughs and peaks. Either expectedly, or unexpectedly, the ups immediately followed the downs, or vice versa, depending on the starting point. Morgan Stanley starts with a trough in 1991, the steepest in the past 35 years. There were five more since then. The 1991 was logical given India’s foreign exchange and economic crisis that resulted in widespread reforms. In 1994 or so, it was possibly after the impact of the Harshad Mehta scandal. In 2003-04, growth fell despite the grand slogan of ‘Shining India.’ There is no need to explain the downward movement in 2008-09 during the Great Recession. In 2012-13, India was hit by skyrocketing loan defaults, and twin-balance sheet paradox. There is now a comparable trough in 2025-26.

According to the brokerage house, this implies that Indian equities, and Sensex are “significantly undervalued compared to gold.” The current levels coincide with similar troughs in 2003-04, 2008-09, and almost 2012-13. During the Great Recession, there was a major multi-year bull run for gold, which undermined the equities. Gold prices surged by almost a quarter within a year, as the yellow metal became a safe and risk-free asset for investors. “Historically, we have seen that economic crises have always favoured safe haven buying, and gold prices,” states a media report. However, the flip side is that the troughs are instantly followed by peaks, 1992 after 1991, 1995 after 1994, and then in 2000, 2007 after 2003, a milder peak in 2010 after 2008, another one in 2016 after 2012, and two highest peaks in 2018 and 2021-22. Thus, one need not get too excited about the current trough, which may seem to make equities lower priced, and attractive, but can change in a year.

Morgan Stanley tries another logic to compare equities with gold. It tracks the five-year compounded annual growth rate of its MSCI India index relative to corporate earnings, book value, gold value, and inflation. This graph is “pointing significantly lower, closer to baseline” in 2025-26. It reiterates the same point as reflected by the first graph, which is that the Sensex is inexpensive compared to gold. However, there are two issues to consider. The troughs in the second chart do not always coincide with the first one. The deep troughs are 1999, 2002-03, 2005, 2009, 2013, 2016, and 2020. The current trough in 2025-26 is less deep, and higher, and came earlier only in one year, 2022-23. So, it does not reflect the bottom, and may indicate that the Sensex has some more way to go downwards. But this, according to Morgan Stanley, is a gauge of sentiments, not fundamentals, and the trajectory is downward, which will be substituted by an upward reversal in the future. Unlike the first graph, which is more conclusive, one is not sure of the second.

There is yet another measure that Morgan Stanley reckons with, and this has nothing to do with the Sensex, prices of gold, and stock valuations. It is about ownership and wealth of the Indian households. Cumulative gold wealth, at nearly $3.7 trillion, more than three times the equity wealth at $1.2 trillion. Gold savings annually too are generally twice that in equities, as gold accounts for six per cent of the annual saving allocations by the Indian households. However, structural changes are underway over the past decade or so. There is a “secular shift to equity savings,” and the “Great Indian Wealth Boom” is ensuring an increase in allocations to the paper assets like the Sensex, compared to physical assets like gold, and real estate. Thus, there is bound to be a boom in equities because of preferences, which will shift further towards equities given the gold’s high prices. It is high time that the Sensex reaches new highs, and crosses the 1,00,000-mark. Imagine, just two decades ago, we were talking of Sensex@10,000.