India has gone through transformation; became a major player in Asian and Global economy: Morgan Stanley

India has transformed, gaining a position in the world order and becoming a key driver for Asia and global growth, said Morgan Stanley. In a report, Morgan Stanley said significant scepticism about India, particularly with overseas investors, ignores the significant changes that have taken place in India, especially since 2014.

New Delhi: India’s transformation since 2014 has positioned it as a crucial catalyst for Asian and global growth, according to a research report by Morgan Stanley released on Wednesday. The report emphasizes that India today is markedly different from its state in 2013, experiencing substantial positive consequences on both the macro and market outlook in just a decade.

Addressing scepticism surrounding India's potential, particularly among overseas investors who argue that despite its status as the second-fastest growing economy and one of the top-performing stock markets in the past 25 years, it has failed to deliver on its promise, the report dismisses these concerns. It suggests that such a perspective disregards the significant changes that have occurred in India, particularly since 2014.

The report identifies ten major changes that have driven India's progress, including supply-side policy reforms, the formalization of the economy, the implementation of Direct Benefit Transfer, the establishment of the Insolvency and Bankruptcy Code, a focus on foreign direct investment (FDI), and the adoption of flexible inflation targeting. These policy choices have had profound implications for India's economy and market.

Consequently, the report anticipates a new cycle of growth in manufacturing and capital expenditure (capex) as their share in the Gross Domestic Product (GDP) increases. It also projects that India's export market share will rise to 4.5 percent by 2031, nearly doubling from 2021 levels, with widespread gains in both goods and services exports. Furthermore, there will be a significant shift in the consumption basket.

With India's per capita income expected to rise from USD 2,200 presently to approximately USD 5,200 by 2032, the report emphasizes that this will lead to notable changes in the consumption patterns, particularly towards discretionary consumption. Additionally, it suggests that inflation will remain benign and less volatile, implying shallower interest rate cycles and a favourable trend in the current account deficit.

The report highlights that the share of profits in GDP has doubled from all-time lows in 2020 and is likely to continue increasing, possibly even doubling from its current level. This trend will result in strong absolute and relative earnings, which explains India's seemingly high headline equity valuations.

Moreover, as India's reliance on global capital market flows has diminished, the market's sensitivity to a potential US recession and changes in US Federal Reserve interest rates appears to be fading, the report adds.

While the report expresses optimism about India's growth trajectory, it also acknowledges key risks that could impede progress. These risks include a global recession, a fragmented outcome in the 2024 general elections, a sharp rise in commodity prices due to supply outages, and shortages in skilled labour supply.

The research report underscores India's remarkable transformation over the past decade and its potential as a significant driver of Asian and global growth. It attributes India's progress to a range of policy reforms and market developments, which have laid the foundation for a new phase of growth in manufacturing, exports, and consumption. However, the report also cautions against various risks that could affect India's growth trajectory.