Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

Steady Growth and Resilient Demand: A Positive Outlook for India's Economy

Published 22/05/2024, 09:06 pm

India's economy continues to demonstrate resilience, buoyed by strong domestic demand and stable macroeconomic indicators, according to Morgan Stanley (NYSE:MS). The firm maintains an optimistic outlook, although it notes potential risks from global factors and the upcoming election outcomes.

Domestic demand-based high-frequency data for April showed a marked increase on both year-over-year (YoY) and month-over-month (MoM) bases. GST collections hit a record high of Rs 2.1 trillion in April, a 12.4% YoY increase. The Manufacturing Purchasing Managers' Index (PMI) remained strong at 58.8, while the Services PMI reached 60.8, driven by robust demand and rising new orders. On the external front, exports grew by 4.1% YoY on a three-month moving average (3MMA) basis in April, compared to just 0.6% in the previous three months.

Inflation metrics were relatively stable in April. The Consumer Price Index (CPI) inflation was at 4.83% YoY, while core CPI stood at 3.2% YoY, both similar to March levels. However, the Wholesale Price Index (WPI) saw an increase, reaching a 13-month high of 1.3% YoY in April, up from 0.5% in March, partially due to the base effect.

The trade deficit widened to $19.1 billion in April from $15.6 billion in March. On an annualized basis, the trade deficit increased to 6.4% of GDP in April from 5.2% in March. Excluding oil and gold, the trade deficit rose to 2% of GDP from 0.3% in the previous month. Morgan Stanley projects the current account deficit for the quarter ending June 2024 to be around 1% of GDP.

Interbank liquidity showed a deficit of $9.3 billion in May, after being in surplus in March and April. The weighted average interbank call rate stayed steady at 6.49%, close to the repo rate. The fiscal deficit, on a 12-month trailing basis, widened to 6.1% of GDP in February 2024 from 5.6% in January 2024, influenced by seasonal factors.

Morgan Stanley remains positive on India's growth prospects, supported by strong domestic demand, as indicated by high-frequency growth data. They project GDP growth of 6.8% for FY 2025 and 6.5% for FY 2026. Inflation is expected to benefit from favorable base effects, with headline inflation anticipated to hover around 5% YoY in the second quarter of 2024, and to soften to 4.1% YoY in the latter half of the year. CPI is projected to average 4.5% YoY for FY 2025-26.

The current account deficit is likely to remain within a manageable range, supported by robust services exports, staying around 1.0-1.5% of GDP for FY 2025-26. Despite the benign macro stability indicators, growth outcomes will influence the monetary policy path. With strong growth trends driven by capital expenditure and productivity gains, Morgan Stanley expects policy rates to remain steady through FY 2025-26.

Also Read: A Guide to Finding Undervalued Stocks With HIGH Accuracy

Offer: Unlock the power of InvestingPro+ for unparalleled stock analysis. Discover high-quality dividend stocks, gain insights into top investors' portfolios, and access our advanced intrinsic value calculations. Click here and subscribe now at 69% off, just INR 526/month!

X (formerly, Twitter) - Aayush Khanna

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.