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India is set to play a bigger role in the global economy over the coming decades, noted a recent report by Morgan Stanley. The report says with the expectation of India's credit to GDP rising and manufacturing gaining a bigger share in GDP, country's role in global economy will significantly go up.
The report said that India is on track to gain more share in global output in the coming years due to a mix of strong foundational factors. These include robust population growth, a functioning democracy, stable macroeconomic policies, improved infrastructure, a rising entrepreneurial class, and better social outcomes. It stated "India will become the world's most sought-after consumer market, it will undergo a major energy transition, credit to GDP will rise and manufacturing could gain share in GDP". The report also noted that these strengths will help India become the world's most sought-after consumer market. In addition, the country is expected to undergo a major energy transition and experience stronger growth in credit and manufacturing sectors. The report added that the falling intensity of oil in India's GDP and a rising share of exports, especially services, will support fiscal consolidation. The government is likely to achieve a primary surplus within three years. This, along with reduced saving imbalance, could lead to structurally lower real interest rates. The report said this combination of high growth, low volatility, and falling interest rates supports higher price-to-earnings (P/E) ratios in the equity market. It highlighted that Indian households are shifting their investments towards equities, and this trend is expected to continue. The improved macroeconomic stability and changes in household balance sheets are supporting the sustained demand in the stock market. It also noted that even though stocks have de-rated compared to long bonds and gold, India is steadily gaining a bigger share in global GDP. The report stated that the soft earnings growth phase, which began in the second quarter of FY2025, seems to be ending. However, the market is still cautious. Despite foreign portfolio investor (FPI) positioning being at its weakest level since data began in 2000, Morgan Stanley said it remains confident in India's long-term prospects. It added that India's low beta implies it could perform well during a global bear market but may underperform during a global bull run. However, the report also warned about downside risks such as slowing global growth, worsening geopolitics, rising oil prices, and continued supply chain disruptions, especially in areas like rare earth materials and fertilizers. (ANI)
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