India Set To Capture Larger Share Of Global Economy: Morgan Stanley

These developments, according to Morgan Stanley, are underpinned by robust demographic growth, a functioning democratic framework, and enhanced social indicators

Lower saving imbalances, along with improved fiscal metrics, could contribute to structurally lower real interest rates over the medium term

Source : ABPLIVE AI

India is on course to emerge as a major force in the global economy in the coming decades, according to a recent analysis by Morgan Stanley. The global investment bank expects India’s contribution to the world’s output to increase steadily, supported by a range of strong macroeconomic and demographic factors.

The report projects that India’s credit-to-GDP ratio is likely to rise while manufacturing will occupy a larger portion of the country’s economic output. “India will become the world’s most sought-after consumer market, it will undergo a major energy transition, credit to GDP will rise and manufacturing could gain share in GDP,” the report stated.

These developments, according to Morgan Stanley, are underpinned by robust demographic growth, a functioning democratic framework, and enhanced social indicators. A stable policy environment, expanding infrastructure, and a vibrant entrepreneurial ecosystem further support India’s structural growth outlook.

Energy Transition And Export Performance Key To Fiscal Strength

The report also highlights a positive shift in India’s energy and fiscal dynamics. It notes that the economy’s dependence on oil is declining, while the export sector, particularly services, is gaining ground. This trend is expected to aid fiscal consolidation, with the government likely to record a primary surplus within the next three years.

Lower saving imbalances, along with improved fiscal metrics, could contribute to structurally lower real interest rates over the medium term.

Stronger Equity Market And Changing Household Investment Behaviour

Morgan Stanley sees Indian households increasingly favouring equity markets for their investments—a trend expected to continue. Improved macroeconomic conditions and household balance sheets are contributing to sustained demand for equities. “This combination of high growth, low volatility, and falling interest rates supports higher price-to-earnings (P/E) ratios in the equity market,” the report noted.

It further observed that while Indian equities may have underperformed relative to long-term bonds and gold, the country is still expanding its share of global GDP.

Risks Remain, But Long-Term Outlook Strong

The investment bank believes that the soft patch in earnings growth, which began in the second quarter of FY25, appears to be ending. Despite foreign portfolio investment (FPI) positioning being at its weakest level since the year 2000, Morgan Stanley remains optimistic about India’s long-term trajectory.

That said, the report cautions against several downside risks, including the potential for a slowdown in global economic activity, escalating geopolitical tensions, rising crude oil prices, and continued disruptions in the supply of critical materials like rare earth elements and fertilizers.

While acknowledging that India’s low market beta may result in underperformance during global bull runs, Morgan Stanley added that it could offer resilience in times of global economic downturns.