India set to become world's top consumer market: Morgan Stanley
What's the story
India is on track to become the world's most sought-after consumer market, according to a new report by Morgan Stanley. The prediction is based on structural economic changes, a major energy transition, and rising manufacturing activity in the country. The research highlights macroeconomic stability, fiscal discipline, and policy reforms as key factors that could drive sustained growth and investment inflows into India.
Economic resilience
Indicators of a more resilient India
The report notes several economic indicators that point toward a more diversified and resilient India. These include a rising credit-to-GDP ratio and an increasing share of manufacturing in the country's GDP. The research also highlights falling oil intensity in GDP and a higher share of exports, especially services, as signs of India's improving external position.
Fiscal outlook
Fiscal consolidation and inflation stability
Morgan Stanley forecasts fiscal consolidation for India, predicting a primary surplus within three years. This could help reduce the saving-investment imbalance and enable structurally lower real interest rates. The report further predicts that lower inflation volatility, driven by supply-side improvements and flexible inflation targeting, will stabilize both interest and growth rate fluctuations in the coming years.
Market potential
Structural shift in household balance sheets
The report suggests that high growth coupled with low volatility and declining interest rates could lead to higher price-to-earnings (P/E) ratios. This scenario is likely to trigger a structural shift in household balance sheets toward equities, already seen in sustained retail participation in the stock market. The "low beta" environment, backed by improved macroeconomic stability and greater household portfolio diversification, further enhances India's appeal to investors.
Growth catalysts
Soft patch in corporate earnings growth nearing end
The report notes that the soft patch in corporate earnings growth, which started in Q2 FY2025, seems to be ending. While the market may remain cautious, a dovish stance from the Reserve Bank of India is aiding a growth recovery. To further strengthen sentiment, Morgan Stanley identifies several potential catalysts: concluding a trade deal with the US, new capital expenditure announcements, and an acceleration in loan growth.
Investment destination
Prolonged period of high growth ahead for India
Morgan Stanley concludes that India's robust domestic demand, rising industrial capacity, macroeconomic stability, and favorable demographic trends could make it a top global investment destination. If these factors align perfectly, India could enter a prolonged period of high growth with reduced economic volatility. These conditions are likely to attract both domestic and international investors in unprecedented numbers.