India’s equity market presents an attractive opportunity, with the country expected to continue growing its share of global output in the coming decades, driven by a combination of strong foundational factors, according to a new Morgan Stanley report. Key drivers include robust population growth, a functioning democracy, stable macroeconomic policies, improving infrastructure, a rising entrepreneurial class, and better social outcomes.
The report suggests that India will emerge as the world’s most sought-after consumer market. It also predicts that the country will undergo a major energy transition, credit to GDP will rise, and manufacturing could gain a larger share of the country’s GDP in the coming years.
While high-frequency economic indicators have shown mixed results recently, they are still significantly better than a few months ago. Morgan Stanley expects economic growth to recover after a projected slowdown in the second half of 2024, supported by fiscal and monetary policy measures and a recovery in service exports. The firm forecasts GDP growth of 6.3% in FY25 and 6.5% in FY26.
Macro stability is expected to remain within comfortable ranges, providing flexibility for policymakers to maneuver effectively. The report also notes that India’s relative earnings growth is showing positive momentum, even compared to more conservative consensus forecasts. Valuations across the Indian equity market are now at their most attractive levels since the COVID-19 pandemic, making the country a key investment opportunity.
India’s low beta characteristic positions it well in an uncertain global macroeconomic environment, according to Morgan Stanley. Beta (β) indicates an asset’s volatility relative to the broader market, measuring the correlation between the asset’s price fluctuations and market movements. With its positive sentiment indicator in strong buy territory, the firm believes that a likely shift in India’s fundamentals has yet to be fully reflected in market prices. This positions India to recover lost ground against its peer group through the rest of 2025.
The ongoing quarter could see earnings surprises, with valuations across market sectors remaining attractive. Financial stocks have outperformed, and Morgan Stanley expects this trend to continue. Additionally, consumer discretionary and select industrial sectors could see stronger performance.
Despite regional trade tensions affecting Asia’s overall growth, India is well-positioned due to its low reliance on goods exports, a strong services export sector, and policy support for domestic demand. The country’s economic recovery is expected to gain momentum with a reversal of the double tightening in fiscal and monetary policies.
Monetary easing is expected to reach full throttle across three fronts—rate cuts, liquidity injection, and regulatory easing—all of which will support the country’s growth recovery. Trade tensions may weigh on the broader region’s trade outlook, but India is less exposed due to its low goods exports to GDP ratio.
The report highlights the strong recovery in India’s economic indicators, including Goods and Services Tax (GST) revenue, which accelerated to an average of 10.7% in January-February 2025, compared to 8.9% in Q3 2024 and 8.3% in Q4 2024. When adjusting for the leap year, GST revenue growth was close to 12.6% in January-February 2025.
Morgan Stanley expects that India’s recovery will be driven by sustained government capital expenditure, the easing of monetary policies, a moderation in food inflation that will lift real household incomes, and the continued growth of services exports. The firm believes that these policies, which have only been implemented in the past six weeks, will take time to fully support economic recovery but will prove beneficial in the longer run.
Private consumption showed signs of recovery in Q4 2024, with real private consumption growth accelerating to 6.9%. The Fast-Moving Consumer Goods (FMCG) sector also saw stronger growth, particularly in rural areas, where volume growth reached 7.1%.
The Reserve Bank of India’s recent easing of regulatory tightening on non-bank financial companies (NBFCs)—evident in the rollback of a 25% increase in risk weights for bank credit to NBFCs—is expected to improve liquidity accessibility for both NBFC lenders and end borrowers, further supporting the growth momentum.
(With IANS inputs)
