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Morgan Stanley Commends India's Remarkable Transformation under Prime Minister Modi's Leadership
In Short: Morgan Stanley lauds India's progress under PM Modi, highlighting positive macro and market outlook. India predicted to become a major Asian leader and contribute significantly to global growth. Recognition boosts investor confidence in India's economic potential.
NEW YORK, USA: Morgan Stanley Commends India's Remarkable Transformation under Prime Minister Modi's Leadership
In a recent report titled 'India Equity Strategy and Economics: How India Has Transformed in Less than a Decade,' renowned global financial services firm, Morgan Stanley, has lauded the Indian government led by Prime Minister Narendra Modi for its exceptional achievements. The report highlights India's impressive growth in both macroeconomic and market aspects, positioning the country firmly within the global order.
Over the span of just ten years, India has made significant strides, propelling itself to the forefront of global development. Morgan Stanley's analysis indicates a positive outlook for India, forecasting its ascent as a prominent leader among Asian nations in the near future. Moreover, the report projects that India will contribute approximately one-fifth of global growth in the next decade, underscoring the nation's potential impact on the global economy.
The report also outlines ten implications of India's transformation:
1. Manufacturing and capex as % of GDP to increase steadily: The report predicts a new cycle of growth in manufacturing and capital expenditure, with their share in GDP expected to rise by approximately 5 percentage points by 2031.
2. Export market share to double: India's export market share is projected to reach 4.5% by 2031, nearly doubling from 2021 levels. This growth will be seen across goods and services exports.
3. Major shift in consumption basket: As per capita income rises from $2,200 to around $5,200 by 2032, there will be significant changes in the consumption patterns, with a boost to discretionary spending.
4. Lower volatility in inflation and interest rates: Inflation is expected to remain stable and less volatile, leading to shallower interest rate cycles. This could also result in more benign equity market cycles.
5. Improving current account deficit: The report suggests that India's structural transformation will positively impact its external balance sheet, leading to a progressively narrower trend in the current account deficit.
6. Profit boom: Profits as a share of GDP have already doubled and are expected to rise further. This will drive strong absolute and relative earnings and support the equity market. Reforms, increased investments, and improved credit-to-GDP ratio are the driving factors.
7. Reduced correlation with oil prices: With a lower share of foreign portfolio investment in current account funding, India's stock market shows a reduced negative correlation with oil prices, especially during supply disruptions.
8. Decreased correlation with US recession: As India relies less on global capital market flows, its sensitivity to a US recession and changes in US Federal Reserve rates appears to be diminishing.
9. Valuation re-rating: India's persistent domestic demand for stocks and anticipated long-term growth have led to a re-rating of stock valuations, though they have moderated from previous highs.
10. Reduced beta to emerging markets: Improved macro stability and reduced reliance on global capital market flows for current account financing have resulted in India's beta to emerging markets falling to 0.6.
The Morgan Stanley report serves as a testament to the government's steadfast commitment to implementing impactful reforms, driving growth, and improving the overall business environment in India. It highlights the nation's rising prominence and its ability to capitalize on emerging opportunities, bolstering the confidence of domestic and international investors alike.
As India continues to pursue its ambitious economic agenda, the recognition and support from prestigious institutions like Morgan Stanley further bolster its standing on the global stage. With a firm focus on sustainable growth and continued reforms, India is poised to make significant contributions to the Asian region and the world at large in the years to come.