Morgan Stanley (NYSE:MS) Research has forecasted that India's economy is poised to grow at a rate of approximately 6.5% for the fiscal years 2024 and 2025, driven by strong domestic fundamentals. The financial institution cites robust domestic demand, resilience in the corporate and financial sectors, and progressive policy reforms as key factors supporting India's growth despite a global economic slowdown.
The forecast arrives at a time when geopolitical tensions, particularly the escalating conflict in Israel, pose risks to global oil prices. An increase in oil prices could have negative repercussions for India by inflating import bills, widening fiscal deficits, and exacerbating trade balance issues.
In a vote of confidence for the Indian economy, both Moody's (NYSE:MCO) Investor Services and the International Monetary Fund (IMF) have projected positive growth for the country in 2023. This optimistic outlook is bolstered by stronger-than-expected domestic demand and first-quarter consumption figures. The Reserve Bank of India (RBI) shares a similar growth estimate for FY24.
Morgan Stanley anticipates a decline in inflation from 5.4% in FY2024 to 4.9% in FY2025 and expects the current account deficit to remain steady. The inclusion of India in the Global Bond Index-Emerging Markets (GBI-EM) starting June 2024 is anticipated to improve the balance of payments scenario. Similarly, JPMorgan Chase & Co. (NYSE:JPM)'s decision to add Indian government bonds to its emerging market index from June 2024 is likely to attract additional foreign investment inflows.
The bank also highlighted that the general elections scheduled for May 2024 could impact economic growth and macroeconomic stability. In response to a sustained moderation in inflation, Morgan Stanley predicts that the RBI will implement two rate cuts of 25 basis points each by mid-2024. These adjustments would support private consumption growth and encourage private capital expenditure (Capex), which are both expected to gain momentum.
The RBI has maintained the repo rate at 6.5% since February, signaling stability in monetary policy. Export trends are also expected to stabilize, contributing positively to growth without becoming a drag on the economy.
Morgan Stanley emphasizes that maintaining a 'goldilocks' environment—neither too hot nor too cold—is crucial for India's continued economic expansion. The firm underlines the importance of RBI vigilance in liquidity management and keeping real policy rates positive to foster a favorable domestic economic climate. Moreover, business confidence is deemed essential for invigorating the Capex cycle and sustaining economic development.
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