Prime Minister Narendra Modi recently completed 9 years in office, and according to international brokerage firm Morgan Stanley, India has transformed under his leadership, gaining a position in the world order and becoming a key driver for Asia and global growth
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. "This India is different from what it was in 2013. In a short span of 10 years, India has gained positions in the world order with significant positive consequences for the macro and market outlook," it said
Listing the 10 big changes that have happened since PM Modi took office in 2014, analysts at Morgan Stanley said bringing corporate tax at par with peers and infrastructure investment picking pace are one of the biggest supply-side policy reforms. Also, the rising collection of GST, and the rising share of digital transactions as a percentage of GDP indicate formalisation of the economy
Transfer of subsidies to accounts of beneficiaries, insolvency and bankruptcy code, flexible inflation targeting, focus on FDI, government support for corporate profits, a new law for real estate sector and MNC sentiment at multi-year high were other significant changes in the last 10 years in India, according to Morgan Stanley
Manufacturing and capital spending as a percentage of GDP has continuously risen, Morgan Stanley said, adding export market share is projected to more than double to 4.5% by 2031. There has also been a major shift in the consumption basket following lower volatility in inflation and shallower interest rate cycles
According to analysts, all these developments have led to a profit boom for corporate and stock market investors and a breakdown in correlation with global oil prices. "Indian stocks have become more defensive," Morgan Stanley said
The steady increase in manufacturing and capex as a percentage of GDP is likely to result in "a new cycle in manufacturing and capex, as we estimate the share of both to rise in GDP by approximately 5ppt by 2031," said Morgan Stanley, adding India's export market share will rise to 4.5% by 2031, nearly 2x from 2021 levels, with broad-based gains across goods and services exports
Analysts at Morgan Stanley believe that as India's per capita income increases from $2,200 currently to about $5,200 by 2032, this will have major implications for change in the consumption basket, with an impetus to discretionary consumption. "We expect inflation to remain benign and less volatile, which would imply shallower rate cycles. Shallower rate cycles could also imply more benign equity market cycles," it said
Morgan Stanley believes that India's structural transformation will feed into the saving-investment dynamics, implying gains for its external balance sheet, with a progressively narrower trend in the Current Account Deficit. "The share of profits in GDP has doubled from all-time lows hit in 2020 and are set to rise further - maybe even double from here - leading to strong absolute and relative earnings," it said
According to Morgan Stanley, India's beta to emerging markets has fallen to 0.6. "This is a consequence of improved macro stability and reduction in dependence on global capital market flows to fund the CAD," the brokerage said, adding that key risks, however, remain a global recession, a fragmented general election outcome in 2024, a sharp rise in commodity prices due to supply outages and shortages in skilled labour supply