"We expect the market to rise 10% to the election date in anticipation of continuity and a majority. Post-election, we see the potential for the market to swing in a wide range, depending on the outcome," the multinational investment bank said in the latest report, titled 'One Billion Voters: Will They Please the Market?'.
"In our base case, the equity market rises by 10% to May 24," it said.
As it stands, voting in the world's biggest democracy with about one billion voters will likely commence in April 2024.
"This assumes that the election dates are not advanced, which is a possibility," the report said, as the central government has formed a panel to look into the possibility of 'One Nation, One Election' and make recommendations "at the earliest".
What the opposition does will also be a crucial factor, it said.
"Possibly, the defining moment could be if and when the 26-party opposition alliance, known as INDIA., is able to strike a seat-sharing deal. This is something we will know only closer to the election date," Morgan Stanley said.
"If INDIA were able to muster a viable pre-poll alliance (implying seat sharing that results in bilateral contests with the BJP-led NDA), the market could become less bullish and our upside forecast would not materialize," it noted as possible risks to its forecast.
"If we are right about the pre-election market move, then depending on what the election result is, we believe the market has the potential to swing between +5% and -40% - a wide range underpinning how important the elections could be to the market in the short run," it said, adding that the wild swing has historical precedence although they think it could be "more acute" this time around.
As the battle heats up for next year's Lok Sabha elections, the 26-party Opposition bloc is holding several meetings, in order to lay a broader roadmap against the BJP-led National Democratic Alliance (NDA) at the Centre.
Historically, the Indian market approaches general elections with optimism, the report said, hoping that it would follow a familiar pattern this time around.
But it is to be noted the benchmark US stock market, interest rates, growth in the economy, crude oil prices, and iflation will all be in the mix when it comes to share prices.