India GDP To Grow At 6.8% This Fiscal, 6.5% In The Next, Says Morgan Stanley

Morgan Stanley remains bullish on India's growth outlook on the back of strong domestic demand and expects policy rates to remain steady over financial year 2025–26. Domestic demand remained steadfast in April, while macro stability remained in the comfort range, the brokerage said in a note on May 21.

The research firm expects the gross domestic product to grow 6.8% in the current fiscal and 6.5% in the next fiscal. The domestic demand-based high-frequency data for April inched up, with collections of the goods and services tax scaling to record highs, robust manufacturing purchasing managers' index and services PMI, the note said.

On the inflation front, Morgan Stanley anticipates headline inflation to remain supported by favourable base effects and remain in a range of around 5% in the second quarter of 2024. It expects it to soften to 4.1% in the second half of 2024.

Morgan Stanley maintains its constructive outlook on the economy and said that risks to their view emanate from global factors and election outcome.

The current account deficit is likely to remain benign, supported by strength in services exports. The deficit will remain within the policymakers' comfort zone in fiscal 2025–26, it said.

While macro stability indicators are benign, the brokerage expects growth outcomes to determine the monetary policy path. "With a robust trend in growth, driven by capex and productivity, we expect policy rates to remain steady over F2025-26."