India set to dominate as world’s leading consumer market: Morgan Stanley report

India is on track to become the world’s most sought-after consumer market, according to a new report by Morgan Stanley. The country is poised for significant growth driven by a robust energy transition, rising credit-to-GDP ratios, and an expanding manufacturing sector.

The financial powerhouse highlights that India’s increasing share of global output is a result of its strong foundational factors, including a rapidly growing population, a thriving democracy, macroeconomic stability, improved infrastructure, and a dynamic entrepreneurial class.

These factors, coupled with enhanced social outcomes, are positioning India as a leader in the global economy.

Morgan Stanley forecasts India’s GDP growth to bounce back following a slowdown in the second half of 2024. The firm predicts 6.3% growth for FY2025 and 6.5% for FY2026, supported by fiscal and monetary policies, along with a rebound in service exports.

Macroeconomic stability is expected to remain within comfortable ranges, offering policymakers ample flexibility. However, risks to this growth stem primarily from global trade uncertainties, interest rate fluctuations in the U.S., and geopolitical tensions.

Despite these challenges, India’s stock market remains an attractive investment opportunity, with equity markets undervalued even in the face of strong fundamentals and improving macroeconomic conditions. Morgan Stanley anticipates earnings growth will accelerate, particularly in the financials, consumer discretionary, industrials, and technology sectors.

India’s sound economic fundamentals and stable macro environment make it a beacon of opportunity, especially amidst global uncertainty. The Reserve Bank of India (RBI) has adopted an accommodative stance, cutting rates and increasing liquidity, with another rate cut expected in April, further driving economic growth.

On the fiscal front, the Indian government has implemented income tax cuts and ramped up capital expenditure, all while maintaining fiscal discipline. These measures are expected to fuel domestic demand, particularly in urban areas, as tax cuts boost consumption. Meanwhile, rural consumption remains strong, further supporting growth.

Public and household investments are expected to play a pivotal role in the nation’s economic expansion, with private corporate investments gradually increasing. Strength in service exports will support job creation and enhance purchasing power, further driving the economy forward.

Inflation is expected to remain stable, with the Consumer Price Index (CPI) projected to dip to 4.3% by FY2026-27, down from 4.9% in FY2025. This decline is attributed to moderating food prices and stable core inflation. Additionally, the current account deficit is expected to remain below 1% of GDP, signaling resilience in India’s external balance.

Looking to the future, Morgan Stanley anticipates India will regain lost ground among emerging markets by 2025, further cementing its position as an economic powerhouse on the global stage.