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India is set to become the world's most sought-after consumer market, undergo a major energy transition, witness a rise in credit-to-GDP ratio, and see manufacturing gaining a larger share in GDP, according to a report by Morgan Stanley.
The report stated that the falling intensity of oil in India's GDP, along with the rising share of exports, especially services in GDP, and fiscal consolidation with a likely primary surplus in three years, will imply a lower saving imbalance. This, in turn, will allow structurally lower real interest rates in the economy. It stated "India will become the world's most sought-after consumer market". At the same time, the report pointed out that lower inflation volatility, resulting from both supply-side and policy changes such as flexible inflation targeting, means that volatility in interest rates and growth rates is likely to decline in the coming years. It also said that high growth combined with low volatility, falling interest rates, and low beta could lead to higher price-to-earnings (P/E) ratios. This scenario, according to the report, will support a shift in household balance sheets towards equities, which is already visible in the equity market in the form of a sustained bid on stocks. The low beta itself, it said, stems from improved macroeconomic stability and structural shifts in household balance sheets towards equities. It also noted that current price action hides how much stocks have de-rated relative to long bonds and gold, while India continues to gain share in global GDP. The report further said that the soft earnings growth patch, which began in the second quarter of FY2025, now appears to be ending, although the market may not yet be fully convinced. It added that a dovish central bank is supporting a turnaround in growth, but confidence in this may require better clarity on the external growth environment and rationalization of GST rates. Looking ahead, the report also highlighted that a final trade deal with the US, more capital expenditure announcements, acceleration in loans, already visible in the corporate bond market, uniform improvement in high-frequency economic data, and improving trade with China could serve as catalysts for further growth. (ANI)
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