Mumbai, Aug 4 India is likely to capture a larger share of global output in the coming decades, supported by strong foundational factors such as robust population growth, a functioning democracy, macro stability-focused policies, improved infrastructure, a growing entrepreneurial class, and better social outcomes, a new report said on Monday.
The data compiled by Morgan Stanley Research said these strengths will make India one of the most sought-after consumer markets in the world, drive a major energy transition, boost manufacturing’s share in GDP, and push up the ratio of credit to GDP.
A decline in oil intensity in GDP, rising exports -- especially services -- and fiscal consolidation, with the country likely to achieve a primary surplus in three years, are expected to reduce saving imbalances and keep real interest rates structurally lower.
Morgan Stanley added that lower inflation volatility, supported by supply-side improvements and flexible inflation targeting, will help reduce fluctuations in interest rates and growth.
This combination of high growth, low volatility, and falling interest rates supports higher market valuations and encourages households to shift more of their savings towards equities.
While near-term market returns will depend on confidence in the growth cycle, the brokerage remains ahead of consensus in its outlook.
It said the soft patch in earnings growth seen since the second quarter of FY25 appears to be ending, though markets may not yet be fully convinced.
Factors such as a dovish central bank stance, clarity on the global growth environment, GST rate rationalisation, a final trade deal with the US, more capital expenditure announcements, a pick-up in loan growth, better high-frequency economic data, and improved trade with China could serve as catalysts.
Risks include slower global growth, geopolitical tensions, and disruptions in key supply chains such as rare earths and fertilisers.
In its portfolio strategy, Morgan Stanley favours domestic cyclical sectors over defensives and external-facing sectors, with overweight positions in financials, consumer discretionary, and industrials.
It remains underweight on energy, materials, utilities, and healthcare, and expects the current market to favour stock pickers over macro-driven strategies.
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