India's Economic Surge: Poised for Global Market Leadership

India is on the verge of becoming the world's premier consumer market, with significant strides in its energy transition and a surge in manufacturing's contribution to GDP. These observations were detailed in a recent report by Morgan Stanley, which highlights the declining intensity of oil in the nation's GDP and a burgeoning export sector, notably in services. Alongside anticipated fiscal consolidation leading to a primary surplus within three years, these factors are setting the stage for structurally reduced real interest rates.

The report emphasizes India's potential as the most coveted consumer market globally. It links this to decreasing inflation volatility, which is being driven by supply-side reforms and policy measures like flexible inflation targeting. Consequently, this will likely lead to reduced fluctuations in interest and growth rates going forward.

Morgan Stanley also points out a favorable scenario where high growth, coupled with low volatility, dwindling interest rates, and a low beta environment, could elevate price-to-earnings (P/E) ratios. This environment is promoting a shift in household financial portfolios toward equities, a trend already evident in the robust activity of the equity market.

The report cites that the low beta is indicative of improved macroeconomic stability and a structural realignment in household balance sheets favoring equities. It adds that current stock valuations may mask their de-rating compared to long bonds and gold as India continues to claim a larger share of global GDP.

Furthermore, the report suggests that the period of sluggish earnings growth seen from the second quarter of FY2025 seems to be concluding, although market sentiment may still be skeptical. The central bank's dovish stance is aiding growth recovery; however, bolstering confidence might require greater clarity on global economic conditions and GST rate adjustments.

Looking to the future, the report identifies several growth catalysts, including a prospective trade agreement with the US, increased capital expenditure, the corporate bond market's momentum, uniform positive shifts in economic indicators, and enhanced trade relations with China. These elements could collectively fuel further economic expansion. (ANI)

(With inputs from agencies.)