New Delhi: 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.
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 USD 1.9 trillion to USD 5 trillion," Morgan Stanley said.
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.
