Morgan Stanley maintains a positive outlook on India’s equity market, projecting a 15-18% upside for the Sensex, with a target of 93,000. Despite a temporary earnings slowdown expected to last 2-3 quarters, the global financial firm anticipates a robust earnings recovery with a 15-20% annual growth in rupee terms thereafter. Jonathan Garner, the firm’s Chief Asia and Emerging Markets Equity Strategist, sees this as a temporary phase, predicting that India’s economic growth will regain momentum soon.
The firm forecasts India’s GDP growth at 6.3% for FY25 and 6.5% for FY26, with inflation expected to stay around 4%. Garner also expects the Reserve Bank of India to cut rates twice this year, which would further support the market. As earnings growth continues to outpace global averages, India’s stock market is set to attract a broader base of global investors, beyond just those focused on emerging markets.
Garner remains confident that foreign institutional investors (FIIs) will continue to be involved in India’s growth story, even after recent sell-offs. He believes that these sell-offs reflect a “problem of success,” given the strong performance of Indian equities in recent years. India currently holds about 2% of the global equities market, and as that share grows to 3-4%, global investors will increasingly be drawn to its market.
While Morgan Stanley remains optimistic about India’s long-term prospects, Garner does caution that risks exist, particularly if global markets, especially the US, enter a bearish phase. A US recession or a downturn in the S&P 500 could trigger a 10% or more correction in Indian equities. Nonetheless, he believes India’s ability to leverage both fiscal and monetary tools to navigate any cyclical slowdown ensures that its growth trajectory remains intact.
India’s Growth Robust Despite Global Slowdown
India’s economy remains strong despite global growth slowing, with long-term GDP growth projected at 6.5% (real) and 10-11% (nominal), according to Mirae Asset’s monthly insight report. Banks and corporate balance sheets are robust, with low NPAs and rising profits, supported by significant free cash flow generation. Household debt levels are manageable, and India’s debt-to-GDP ratio is better than in 2010. Nifty 50 valuations are reasonable, with broad-based earnings growth expected through FY27. Agriculture is improving, with higher rabi crop sowing and favorable price outlooks. Government capex and rural consumption are set to boost growth, supported by state welfare programs and monetary policy measures. Despite short-term challenges, India’s long-term growth outlook remains strong.
India Set for Stronger Economic Growth in FY25, Despite Projected Slowdown
India is projected to experience stronger economic growth in the upcoming fiscal year, with a nominal GDP growth forecasted between 10.3% and 10.5%, surpassing the current growth rate of 9.7%. This positive outlook is intended to address concerns about a potential slowdown, despite the fact that the 2024/25 fiscal year may register the lowest growth rate in the past four years. The forecast highlights the country’s resilience, with expectations that the economy will continue to grow at a pace higher than many other global economies, despite challenges in the near term.
India’s WPI Inflation at 2.37% in December
India’s Wholesale Price Index (WPI) inflation for December 2024 recorded a year-on-year (YoY) increase of 2.37%, slightly higher than the expected 2.30% and up from 1.89% in November. This marks the fifth consecutive month in 2024 where WPI inflation has exceeded 2%. On the food front, WPI Food inflation moderated to 8.47%, down from 8.63% in the previous month. In contrast, WPI Manufacturing inflation showed a slight uptick to 2.14% compared to 2.00% in November. Meanwhile, WPI Fuel inflation showed notable improvement, moving to -3.79%, from the deeper negative of -5.83% in November.
In comparison, retail inflation, which is a more direct measure of consumer prices, fell to a four-month low of 5.22%. Additionally, WPI Food inflation marked a significant milestone, dipping below the 9% mark for the first time, settling at 8.47%. This shift highlights a divergence between the trends in wholesale and retail inflation, reflecting the complex dynamics in India’s broader price pressures.
