Ahead of S&P rating review, Morgan Stanley gives thumbs up to India’s reform agenda

By: | Published: November 24, 2017 11:47 AM

Even as the markets eagerly await the word from global credit rating firm Standard and Poor’s on India, Morgan Stanley says that India is uniquely placed among emerging markets and has a very clear reform agenda to address long-standing issues.

S&P had last upgraded India’s rating from junk grade “BB+” to lowest investment grade “BBB-” 10 years ago in 2007. (Image: Reuters)

Even as the markets eagerly await the word from global credit rating firm Standard and Poor’s on India, Morgan Stanley says that India is uniquely placed among emerging markets and  has a very clear reform agenda to address long-standing issues. In an interview to CNBC TV18, Jonathan Garner, chief Asian and emerging markets equity strategist at Morgan Stanley said, “What we are seeing India is probably uniquely amongst emerging markets (EM). It has a very clear reform agenda to address long standing issues particularly around infrastructure spending. We have also seen, I have been waiting for it for 20 years, the implementation of the goods and services tax (GST) this year. We have seen the recapitalisation of the PSU banks.” Interestingly, while the Moody’s Investor Service upgrade came after a long gap of 14 years, S&P had last upgraded India’s rating from junk grade “BB+” to lowest investment grade “BBB-” 10 years ago in 2007.  

Jonathan Garner also sees India’s earnings to post steady growth going forward. “We are cyclically at the beginning of an upswing in activity and in credit growth and therefore in corporate earnings. So look at corporate earnings growth. We should be getting at least high teens year-on-year (Y-o-Y) earnings growth for the next two years running,” the expert pointed out. Interestingly, he also pointed out that FII investments may return to India, even as domestic investors continue to pump in large sums of money into mutual funds. “Only one other major market that I cover, China, has strong persistent local flows into its equity market. So hopefully it will persuade foreign investors to start to rebuild positions in India now and that is an attractive proposition in our mind,” he told the channel.

A recent Morgan Stanley report says that India is likely to be the world’s fastest-growing large economy in the next 10 years, driven by digitisation, favourable demographics, globalisation and reforms. According to the global financial services major, the trend line in India’s annual GDP growth has been accelerating to 6.9 per cent in 2000s, from 5.8 per cent in the 1990s, and this momentum is likely to continue in the next decade as well.

Morgan Stanley expects digitisation will provide a boost of 50-75 bps to GDP growth and forecast that India will grow to a $6-trillion economy and achieve upper-middle income status by 2026-27. “We think India’s stock market could be among the world’s best performers in the next 10 years, leading to India’s market cap rising from around $2 trillion to around $6 trillion,” the report stated.

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