Morgan Stanley (NYSE:MS) expects India to be one of the best performing emerging markets in 2025, with a base case projection for Sensex to rise by 18 per cent by December end.
According to its latest note, the US-headquartered investment bank sees 18 per cent base case upside for the BSE Sensex by the December end.
"India's macro stability is strong due to improving terms of trade and flexible inflation target," said the global brokerage, forecasting earning of 18–20 per cent earning growth over the next four to five years.
This includes reasons like private capital expenditure cycle, re-leveraging of corporate balance sheets and unfolding of a structural rise in discretionary consumption, besides a reliable source of domestic risk capital which contribute to capital expenditure.
The note further added that other areas of contribution to macro stability in India include infrastructure spending, restructuring of GST rates, direct tax reforms, more free trade agreements, and focus on energy transition.
As far as the interest rates are concerned, Morgan Stanley expects a shallow cycle of 50 basis points with the rate cuts starting from February. The bank expects two consecutive rate cuts of 25 bps each.
The RBI is now committed to durable liquidity. Regulatory tightening may loosen in the weeks ahead, the brokerage said. Initial issuance in the Indian markets is running at about 1.3 per cent of GDP versus the previous peak of over 3.5 per cent and set to rise further, Morgan Stanley said in the note.
The base case forecast also carries with it vigorous homegrown growth, no U.S. recession, and dovish oil prices. "We are using a moderate cut in interest rates and an improving liquidity climate as the base for monetary policy. We do not see bunching of issuances and the retail bid stays in front of the supply," said Morgan Stanley.
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