India is likely to capture a larger share of global output over the next few decades, driven by strong demographic trends, improving infrastructure, and policy stability, according to a report by Morgan Stanley Research.
The report highlights a combination of factors — including robust population growth, a functioning democracy, macroeconomic stability, a growing entrepreneurial base, and improved social indicators — that are expected to position India as one of the most attractive global consumer markets.
It also forecasts a structural shift in India’s economic profile, with manufacturing gaining a larger share in GDP, the credit-to-GDP ratio rising, and a push towards energy transition.
India’s declining oil intensity (or quantity of oil needed per unit of GDP of a nation), growth in services exports, and a path towards fiscal consolidation — with a primary budget surplus expected within three years — could reduce external imbalances and keep real interest rates structurally lower, the report said.
Inflation volatility is also expected to remain subdued, supported by supply-side reforms and the Reserve Bank of India’s flexible inflation-targeting framework. This could result in greater stability in interest rates and economic growth cycles, encouraging higher household allocation towards equities.
“The combination of high growth, low volatility, and falling interest rates supports higher market valuations,” the report noted.
While near-term market performance will depend on confidence in the current growth cycle, Morgan Stanley remains more optimistic than the consensus. It believes the earnings slowdown witnessed since Q2 of FY25 is coming to an end, although investor sentiment may take time to catch up.
Several catalysts could support the outlook, including a dovish monetary stance, greater clarity on global economic trends, GST rationalisation, progress on a trade agreement with the US, higher capex announcements, a rise in loan growth, and better trade relations with China.
However, the report also flagged risks such as weaker global growth, rising geopolitical tensions, and potential disruptions in key supply chains — particularly rare earths and fertilisers.
In terms of investment strategy, Morgan Stanley continues to prefer domestic cyclical sectors over defensives and export-linked businesses. It maintains overweight positions in financials, consumer discretionary, and industrials, while remaining underweight on energy, materials, utilities, and healthcare.
The brokerage said the current market environment is more favourable for stock pickers rather than broad macro-driven plays.
— IANS
