Team Blitz India
TEN transformational changes that have happened in India over the last decade are now set to propel the country to doubling per capita income, doubling export market share, raising the share of manufacturing, boosting corporate profits, and significantly improving other economic health indicators, said Morgan Stanley.
In its report titled ‘How India has Transformed in Less than a Decade’, the global investment bank accredited policy changes, such as supply-side policy reforms, formalisation of the economy, Direct Benefit Transfer, modification of the Insolvency and Bankruptcy Code, focus on FDI and flexible inflation targetingthat led to overwhelmingly positive changes, influencing India’s macroeconomic situation, global standing and local share markets for the better.
“We run into significant scepticism about India, particularly with overseas investors, who say that India has not delivered its potential. However, such a view ignores the significant changes that have taken place in India, especially since 2014.”No underperformance
Ridham Desai, MD, Morgan Stanley India, also countered global opinions that India has underperformed.“We run into significant scepticism about India, particularly with overseas investors, who say that India has not delivered its potential. However, such a view ignores the significant changes that have taken place in India, especially since 2014.”
In order to demonstrate his rationale, the report focused on ten key changes which have had far-reaching consequences and implications for the economy and market.
The primary impact of the changes is the steady rise of manufacturing and capex as a proportion of the GDP. Morgan Stanley projected that the share of both will gain by 5 percentage points each.
Additionally, India’s export market share will rise to 4.5 per cent by 2031, which is nearly twofold from 2021 levels, while the per capita income is expected to clock in at $5,200 within the next decade.
Consumption basket
“This will have major implications for change in the consumption basket, with an impetus to discretionary consumption,” said the report, adding, “We expect India’s real growth to average 6.5 per cent in the next 10 years, making India the third-largest economy at nearly $8 trillion by 2031, up from fifth-largest currently.”
This structural transformation will feed into the saving-investment dynamics, bolstering the country’s external balance sheet, in turn leading to a narrower CAD. Domestic profits might double, which, while it explains the rich equity valuations, will lead to “a major rise in investments, a moderation in the CAD and an increase in credit to GDP to support the coming profit growth”.
The share of profits in GDP has doubled from all-time lows in 2020 and is set to rise further leading to strong absolute and relative earnings, it said, adding, this explains India’s apparently rich headline equity valuations.
As India’s reliance on global capital market flows has reduced, the market’s sensitivity to a US recession and US Fed rate changes also seems to be fading, added the report.
