Indian Economy: Amid the Trump tariff blitz and fear of a GDP dip, a new Morgan Stanley report said that India is on course to emerge as the world’s most sought-after consumer market, buoyed by structural economic changes, a major energy transition, and rising manufacturing activity. The research highlights a combination of macroeconomic stability, fiscal discipline, and policy reforms that could underpin sustained growth and investment inflows.
Shifts in the economy
The report notes that the country is experiencing a rising credit-to-GDP ratio and a growing share of manufacturing in GDP, both of which point to a more diversified and resilient economic base. The falling oil intensity in GDP, coupled with a higher share of exports, particularly in services, suggests that India’s external position is improving.
Morgan Stanley also forecasts fiscal consolidation, with a likely primary surplus within three years. This, in turn, could help reduce the saving-investment imbalance, enabling structurally lower real interest rates. Lower inflation volatility, driven by supply-side improvements and flexible inflation targeting, is expected to reduce fluctuations in both interest rates and growth rates in the years ahead.
Implications for markets and investors
High growth combined with low volatility and declining interest rates could lead to higher price-to-earnings (P/E) ratios, the report says. This environment is likely to support a structural shift in household balance sheets towards equities, already reflected in sustained retail participation in the stock market.
The “low beta” environment, underpinned by improved macroeconomic stability and greater household portfolio diversification, further enhances India’s appeal to investors. Interestingly, Morgan Stanley points out that current equity market performance masks the extent to which stocks have de-rated compared with long bonds and gold, even as India’s share of global GDP rises.
Earnings outlook and policy drivers
The research suggests that the soft patch in corporate earnings growth, which began in the second quarter of FY2025, appears to be ending. While the market may remain cautious, a dovish stance from the Reserve Bank of India is aiding a growth recovery.
For sentiment to strengthen further, the report identifies several catalysts: concluding a trade deal with the United States, new capital expenditure announcements, an acceleration in loan growth—already visible in the corporate bond market uniform improvement in high-frequency indicators, and stronger trade ties with China.
Morgan Stanley concludes that India’s combination of robust domestic demand, rising industrial capacity, macroeconomic stability, and favourable demographic trends could position it as a top global investment destination. If these factors align, the country could enter a prolonged period of high growth with reduced economic volatility conditions that are likely to attract both domestic and international investors in unprecedented numbers.