This Is Still India’s Decade

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.

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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. 

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