Our Head of India Research and Chief India Equity Strategist lays
out his bullish post-election view on India, explaining why the
market is likely to drive a fifth of global growth in the coming
decade.
----- Transcript -----
Welcome to Thoughts on the Market. I’m Ridham Desai, Morgan
Stanley’s Head of India Research and Chief India Equity
Strategist. Along with my colleagues bringing you a variety of
perspectives, today I’ll discuss our take on India’s election
results and why we still believe this is India’s
decade.
It’s Friday, June 14th, at 2pm in Mumbai.
India’s general election results are in, and the world is paying
close attention. The most important aspect of the BJP led NDA
retaining its majority is policy predictability – something
equities tend to thrive on. We believe the market can look
forward to further structural reforms. This gives us more
confidence in our forecast of a 20 per cent annual earnings
growth over the next five years. Macro stability with rising GDP
growth relative to real rates should extend India's
outperformance over Emerging Market equities.
We’ve been bullish on India since April 2020, and we still
believe that India is likely to drive a fifth of global growth in
the coming decade. This will be underpinned by increased
offshoring of both services and manufacturing, as well as the
energy transition and the country's advanced digital
infrastructure. India's stock market has been making new highs.
The big investor debate now is what could take the India market
even higher from here.
We believe share prices have yet to bake in a number of
positives, such as India's newfound macro stability, a likely
fall in its primary deficit moving into a primary balance, and a
fast-evolving deep tech sector, to name just a few.
We expect critical reforms to be made in Modi’s third term. Here
are three more important ones.
Number one, further consolidation of India’s fiscal deficit. From
a market perspective this lends itself to sustained credit
growth, which we think is going to be good for India’s private
banks.
Number two, a continuing buildout of both physical and social
infrastructure. The physical infrastructure will likely focus on
railways. Social infrastructure may include more low-income
housing as well as water and electricity security. These reforms
make us bullish on industrial stocks.
Number three, further growth in India’s manufacturing prowess.
The government will likely focus on improving competitiveness via
fiscal incentives and by building infrastructure within such
industries as defense, electronics, aerospace, food processing
and renewables. We expect India’s energy consumption to rise by
around 50 per cent over the next five years with increasing
contribution from renewables.
From an equities perspective, we think consumer stocks are
well-positioned as nearly 100 million families could move into
the middle-income bracket in the next
decade. At the top end of the income
pyramid, India’s affluent households could quintuple to 25
million over the coming decade, which should support a surge in
luxury consumption.
Of course, there are plenty of risks, even with the elections
behind us – from various capacity constraints to geopolitics, the
impact of AI and climate change. But even with all these in mind,
we still believe this is set to be India's longest and strongest
bull market ever. Stay invested.
Thanks for listening. If you enjoy the show, please leave us a
review wherever you listen and share Thoughts on the Market with
a friend or colleague today.
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