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BW Businessworld

India To Emerge From "Stagflation" Over Next Few Qtrs: Morgan

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The election results could be an "inflexion point" for India's story and the country's GDP is likely to accelerate to 6.8 per cent over the next two years, a Morgan Stanley report says.
 
Inflation, on other hand, is expected to head towards 6 per cent, it added.
 
"We now feel more confident that India will emerge from the stagflation type of environment over the next few quarters," Morgan Stanley said.
 
"The GDP growth is to accelerate by 210bps over the next 8 quarters to 6.8 per cent. Inflation will finally head towards RBI?s comfort zone of 6% over the next two years," it said in a research note.
 
While India's structural story has been very strong, the pace of reforms has been slow in the recent years holding back its growth.
 
Read Also: Modi Landslide Win May Bring IPOs To Table

Reforms that could follow post elections will improve the business sentiment, thereby lifting corporate sector profitability and incentivising a revival in private investment, experts believe.
 
"The election outcome has only increased our confidence in our forecast that India is on course to achieve an average real GDP growth of 6.75 per cent over the next 10 years, taking its nominal GDP from $1.9 trillion to $5 trillion," Morgan Stanley said.
 
Decisive Political Results Credit Positive: Moody's
Morgan Stanley's rosy outlook is reflected by Moody's Investor Service as well which said BJP's resounding election win is credit positive for India as it boosts the prospect that a stable government will address the country's economic challenges.
 
Moody's rates India "Baa3", the lowest investment-grade rating with a "stable" outlook.
 
"The completion of the election will allow stalled policies relating to the corporate and infrastructure sectors to resume, a credit positive for the country's corporates," said Vikas Halan, vice president and senior credit officer at Moody's, said in a statement.
 
Rival rating agency Standard & Poor's also rates India at the lowest investment grade, but with a "negative" outlook.
 
Risks to Morgna Stanley's forecast is weaker than expected global growth and slower than anticipated pace of policy reform.
 
As per the report, some of the near term challenges for the Indian economy in the next 12 months include El Nino and pace of recovery of exports, while some of the medium term challenges for the economy are global environment and reform momentum.
 
On equity markets, the report said that given the mood of the market an "overshoot" is possible. Morgan Stanley's Index target is 26,300 for June, 2015 compared to its previous target of 21,280.
 
In the recently concluded elections, the BJP-led NDA scored an overwhelming majority of 334 seats, in the 543-member Lok Sabha.
 
Some Beg To Differ
Notwithstanding the emphatic win for the BJP-led NDA coalition in Lok Sabha elections, India's GDP growth is not expected to improve significantly this financial year as revival will be more "gradual than sharp", experts said.
 
Hopes are running high that the Narandra Modi-led government would kick start a slew of reform measures and revive the economy to 8 per cent levels.

(BW Online Bureau & Agencies)