The Reserve Bank of India (RBI) is expected to adopt a deeper monetary easing cycle amid slowing growth and easing inflation, according to a Morgan Stanley report released on Tuesday. The global brokerage firm anticipates a cumulative rate cut of 100 basis points, with two additional cuts likely in 2025.
India’s GDP growth is projected at 6.1% for FY26, factoring in ongoing global uncertainties. The report also forecasts the Sensex to reach 82,000 by December 2025—around 9% higher than current levels.
“India’s ‘low beta’ status is allowing it to outperform significantly during the global market selloff, even as the index may witness interim lows,” the report added. It identified key domestic catalysts including a dovish RBI stance, potential GST rate cuts, progress on a trade deal with the United States, and supportive incoming economic data.
Morgan Stanley expects both food and non-food inflation to remain subdued, aided by lower oil prices and easing food costs. Inflation is projected to average 4% in FY26, with the trend likely to remain consistently below the 4% mark in the coming months.
The brokerage also highlighted concerns over global trade dynamics. While the U.S. has deferred reciprocal tariffs on most countries except China for 90 days, the evolving tariff landscape introduces uncertainty that could affect business sentiment. “In our base case, we expect India and the U.S. to conclude and implement a bilateral trade deal in the coming months. However, elevated tariffs between the U.S. and China will likely weigh on global trade and growth,” the report said.
Domestically, consumption is on the rise, supported by stronger rural demand stemming from improved agricultural growth. Public capital expenditure remains robust, although private investment continues to lag.
“India’s domestic growth is being supported by increased government spending and an accommodative monetary policy. We believe the country’s medium-term earnings cycle remains intact,” the report added.
The report also anticipates the government will maintain its fiscal consolidation path for FY26, aided by additional revenue from higher fuel taxes. A recent hike in petrol and diesel excise duty by Rs 2 per litre is expected to contribute approximately 0.1% of GDP in additional revenue, partially offsetting lower tax buoyancy.
— IANS
