New Delhi [India], March 13 : India is poised to become the world's most sought-after consumer market while undergoing a significant energy transition, rising credit-to-GDP ratio, and expanding manufacturing sector, according to Morgan Stanley's latest report.
The report highlights that India is gaining a greater share in global output due to strong foundational factors such as robust population growth, a functioning democracy, macroeconomic stability, better infrastructure, a growing entrepreneurial class, and improved social outcomes.
The financial services giant expects India's economic growth to recover following a slowdown in the second half of 2024. It forecasts GDP growth at 6.3 per cent in FY2025 and 6.5 per cent in FY2026, driven by fiscal and monetary policy support, as well as a recovery in service exports.
The report emphasizes that macroeconomic stability should remain within a comfortable range, providing policymakers with flexibility. However, it also notes that risks stem primarily from external factors such as global trade policies, interest rate movements in the U.S., and geopolitical tensions.
Morgan Stanley believes India's stock market outlook remains promising.
The report indicates that equity markets are currently undervalued despite strong fundamentals and macroeconomic improvements. Earnings growth is expected to accelerate, with financials, consumer discretionary, industrials, and technology sectors likely to outperform.
The firm suggests that India's strong economic fundamentals and stable macroeconomic environment make it an attractive market, especially in an uncertain global economic landscape.
On the monetary policy front, the Reserve Bank of India (RBI) has adopted an accommodative stance by cutting rates and increasing liquidity in the system. Morgan Stanley anticipates another rate cut in April, further supporting economic growth.
On the fiscal side, the Indian government has focused on boosting consumption through income tax cuts and increasing capital expenditure while maintaining fiscal discipline.
The report also highlights the importance of domestic demand in driving India's economic growth. Consumption recovery is expected to broaden as urban demand rises due to tax cuts, while rural consumption remains strong.
Investments from the public and household sectors are expected to play a significant role in economic expansion, while private corporate investments will gradually pick up. Additionally, strength in service exports is likely to support job creation and purchasing power, further fuelling economic growth.
Inflation is expected to remain stable, with headline Consumer Price Index (CPI) inflation projected to decline to 4.3 per cent in FY2026-27 from 4.9 per cent in FY2025. The report attributes this to moderating food prices and stable core inflation. The current account deficit is also expected to stay below 1 per cent of GDP, indicating resilience in India's external balance sheet.
Looking ahead, the report suggests that India is likely to recover lost ground among emerging markets in 2025.
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