Morgan Stanley has a positive outlook for India’s growth in the third quarter (Q3) of this year, expecting strong growth in the coming months. In a note issued on December 26, the brokerage highlighted that capital market activities and global events will play a key role in determining the direction of stock prices. They foresee growth being supported by factors such as increased government spending, the wedding season, and a good summer harvest.
According to Morgan Stanley, the dip in growth during the September quarter was temporary. The company anticipates that the upcoming March quarter could surprise investors, as earnings estimates have seen significant reductions in recent weeks. The brokerage’s projections are above consensus expectations. Indian government officials, including Finance Minister Nirmala Sitharaman, believe that the slowdown was only a temporary dip. She referred to the lower-than-expected GDP growth in the September quarter as a temporary setback.
The Chief Economic Advisor (CEA) to the Indian government, V. Ananth Nageswaran, has also suggested that GDP growth estimates for Q2 may be revised upwards in the future. He cautioned against misinterpreting Q2 data and noted that the index related to global uncertainties had increased during that period.
While India’s stock market cannot be entirely separated from global equity markets, Morgan Stanley observed that the relationship between returns and global equities is weakening. A sluggish global market could limit returns for India’s equity market. The brokerage mentioned that India might underperform in a global bull market, as seen in the past, due to the country’s lower-beta status.
Moreover, global economic slowdowns and deflation in Chinese export pricing could hurt India’s trade prospects. If China’s exports flood the global market, it may diminish India’s ability to increase its global trade. While this had little impact on India in the past, rising oil prices above $110 could pose challenges to macroeconomic data. These factors could potentially hinder India’s growth outlook in the near future.
India Faces Record Liquidity Deficit and Rupee Drop
India’s banking system liquidity deficit has reached its highest point in seven months, climbing to ₹2.43 trillion by December 23. This increase is primarily driven by tax outflows and foreign exchange interventions. Despite the reduction in the Cash Reserve Ratio (CRR), the liquidity deficit has continued to widen, leading to calls for sustained liquidity support to stabilize the situation.
Meanwhile, the Indian Rupee continues to face significant depreciation, hitting an all-time low of 85.56 against the US Dollar. Traders report that the Reserve Bank of India (RBI) has been actively selling dollars in an attempt to curb the rupee’s losses. The revaluation impacts, coupled with ongoing interventions, have contributed to a nearly $50 billion decline in India’s foreign exchange reserves during this quarter.
Stay informed with our financial updates, stocks, bonds, commodities. Get global & political insights. Follow us & enable notifications for the latest updates.