India’s growth cycle is poised to speed up with the reflation efforts of the RBI and government through rate cuts, bank deregulation, liquidity infusion, capex continuation, tax reductions, and a budget that stimulates growth, as per a Morgan Stanley report. Post-Covid, India’s macroeconomic setup is shifting, aided by trade agreements and improving relations with China.
The report highlights that Indian stocks are currently attractively valued, with strong policy support driving a growth upswing, alongside factors like undervalued currency, reduced foreign exposure, and potential for increased buybacks. It anticipates a rise in buybacks due to improved tax regulations and a modest inflow of funds into stocks.
With the diminishing impact of oil on GDP and a growing contribution of exports, particularly in services, along with fiscal consolidation, India is expected to witness a more balanced saving profile, leading to structurally lower real interest rates. Moreover, reduced inflation volatility resulting from supply-side and policy alterations is likely to decrease fluctuations in interest and growth rates in the future.
The report suggests that the combination of high growth, low volatility, declining interest rates, and low beta could drive up price to earnings ratios, encouraging a shift in household investments towards equities. This shift is attributed to enhanced macroeconomic stability and changes in household investment patterns.
Anticipating positive earnings revisions, the report foresees supportive RBI policies, ongoing measures like privatization, and the need for growth recovery to attract net foreign portfolio investments. It notes a macroeconomic trend emerging, differing from the stock-picking environment of 2025.
