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India remained the best domestic demand alpha opportunity in Asia, with investors mostly constructive. Investors are particularly focused on the sustainability of growth as higher compound annual growth will be needed to justify the valuations and new investments, said Morgan Stanley in a report.
Within Asia, India offers a compelling opportunity from a domestic demand alpha standpoint, due to a host of reasons. Firstly, the global investment bank Morgan Stanley noted India's nominal GDP growth will accelerate to 11.6 per cent this year versus 9.2 per cent in 2023, making it the third consecutive year that India's nominal GDP growth will be the strongest in Asia. Second, India's contribution to Asian and global growth will rise to 30 per cent and 17 per cent, respectively, up from 28 per cent and 16 per cent in 2023. Over the medium term, the global investment bank's chief India economist Upasana Chachra forecasts that real GDP growth will average 6.3 per cent until financial 2031-32. Further, Morgan Stanley said it sees signs that the consumption recovery is broadening to the lower and medium-income segments in India. Rural consumption, though, has been the laggard but is currently joining in the recovery. "Within domestic demand, it is the case that private consumption, weighed down by low- and medium-income segments, has been the relative laggard of the recovery since 2H22. Indeed, when we look at the available high-frequency data, certain categories of spending that are more dependent on lower-middle-income segments (especially those tied to the rural economy) had not recovered until Sep-23," the report titled 'The Viewpoint: India - Addressing the Debate With Investors', authored by Chetan Ahya, Derrick Y Kam, Qiusha Peng, Jonathan Cheung said. Moreover, there are also developments in the consumer space where there has been an increase in new products and innovation from smaller companies which appears to be eating into the market share of product suites from larger corporates in the listed space, it noted. "This has led to an intensification of competitive pressures and has triggered downward pricing pressure, affecting the revenue growth and margins of larger corporates in the listed space," it asserted. On capital expenditure spending in India, it foresees a sustained rise in India's investment-to-GDP ratios - rising from 31.2 per cent in the financial year 2022-23 to 33.5 per cent in 2024-25 and further to 36 per cent by 2026-27. India's share in global FDI inflows has risen since 2017 and based on incoming announcements from the corporate sector, the benefits from supply chain diversification efforts are in the pipeline and will materialize in the coming 2-3 years. "While we do expect that public capex momentum (i.e. growth rates of central government capex spending) will moderate after an extended period of strength, we are still expecting it to be relatively strong," the global investment bank's report noted. (ANI)
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