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Morgan Stanley Bullish on India: Growth Cycle Set to Accelerate with Reforms

A Morgan Stanley report states India's growth cycle is set to accelerate, supported by reflationary efforts from the RBI and government, including potential rate cuts and fiscal stimulus. The brokerage highlights a favorable setup for Indian stocks due to inexpensive valuations, strong policy support, and an undervalued currency. Structural improvements, such as a lower savings imbalance and reduced inflation volatility, are expected to lead to lower real interest rates and higher P/E multiples. The report is capitalization-agnostic and anticipates a macro trade unfolding, driven by positive earnings revisions and continued reforms like privatization.

Key Points: India's Growth to Accelerate with Reforms: Morgan Stanley

  • Growth cycle acceleration expected
  • Supportive RBI and government policies
  • Structural shifts in household savings towards equity
  • Positive earnings revisions ahead
  • Improved macro stability lowers volatility
2 min read

India's growth cycle set to accelerate with continuing reforms: Morgan Stanley

Morgan Stanley report predicts India's growth cycle will accelerate due to RBI rate cuts, policy stimulus, and structural reforms, boosting equities.

"Indian stocks enjoy a rare combination of inexpensive relative valuations, poor trailing performance, strong policy stimulus and a consequent growth upcycle - Morgan Stanley report"

New Delhi, Feb 6

India's growth cycle is set to accelerate backed by reflation effort of the RBI and the government via rate cuts, bank deregulation and liquidity infusion, continuing capex, tax cuts and relatively stimulating budget, a Morgan Stanley report said on Friday.

Thus, India's hawkish macro set up post-Covid is now unwinding. The trade deals and thawing of relations with China add to the mix, the report mentioned.

"Indian stocks enjoy a rare combination of inexpensive relative valuations, poor trailing performance, strong policy stimulus and a consequent growth upcycle, an undervalued currency, weak foreign positioning and potentially a new buyback cycle," it mentioned.

The global brokerage expects more buybacks as a result of improved taxation regime and modest net flows into stocks (issuances minus buybacks).

The falling intensity of oil in GDP and rising share of exports in GDP, especially services, and fiscal consolidation imply a lower saving imbalance.

This will allow structurally lower real rates. At the same time, lower inflation volatility as a result of both supply-side and policy changes (flexibility inflation targeting) mean that volatility in interest rates and growth rates is likely falling in coming years, said the report.

"High growth with low volatility and falling interest rates and low beta result in higher price to earnings (P/E). This also supports the shift in household balance sheets toward equity. The low beta itself emanates from improved macro stability and the structural shifts in household balance sheet toward equities," the brokerage explained.

"We are ahead of the consensus and expect positive earnings revisions; RBI policy, which we think will support liquidity and loan growth; several measures including privatisation are likely underway; and FPI positioning remains near lows but net FPI buying will need growth to recover and/or bull markets elsewhere to fade plus a rise in corporate issuances," it added.

The report said it is capitalisation-agnostic and think a macro trade is unfolding (in contrast to the stock pickers' environment in 2025).

- IANS

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Reader Comments

P
Priya S
"Household balance sheets toward equity" - This is a big shift. My father only trusted FDs and gold. Now, with more awareness, even my mom is asking about SIPs. A stable macro environment will bring more middle-class families into the market.
R
Rohit P
Good analysis, but I'm cautiously optimistic. Reports like these often sound great, but the benefits need to percolate down. What about inflation control for essentials? Lower volatility is good, but let's see it on the ground first.
S
Sarah B
The point about services exports is crucial. India's IT and digital services are becoming a major global force. If policy supports this sector further, it can be a massive growth engine, creating high-quality jobs.
V
Vikram M
"Thawing relations with China" is a double-edged sword. While good for trade, we must be strategic and not become overly dependent. Atmanirbhar Bharat in critical sectors is still very important for long-term security.
K
Karthik V
The reduction in oil intensity of GDP is a silent victory. Years of pushing for renewables and energy efficiency are paying off. This makes us less vulnerable to global price shocks. A solid foundation for sustained growth.

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