Episode summary
India’s Next Market Phase
Thoughts on the Market (Morgan Stanley)
· · Guests: Chetan Ahya, Ridham Desai
Summary
India’s near-term market backdrop is split between strong domestic demand and cautious foreign participation. The speakers said local investors remain bullish, while overseas investors are still waiting for a better entry point. Macro data are still solid, with bank credit growth at 17.7% year-on-year and passenger vehicle sales up 27% in May, but India’s relative earnings growth has cooled versus other markets, which is making allocation decisions harder for global investors.
The main policy point was that recent measures to remove withholding tax on debt investors and ease foreign-currency borrowing should help capital inflows, especially into debt, over the next 12 months. The speakers argued, however, that equity flows will depend more on whether India’s relative growth re-accelerates, or whether a new IPO cycle brings foreign money back.
Both guests see a broader capex cycle taking hold in India, driven by AI infrastructure, energy, defense, and industrial onshoring. They argued that financials look especially attractive because bank balance sheets are clean, margins have bottomed, and credit growth is improving. Industrials and consumer names were also highlighted, while IT services were described as a possible dark horse if AI disruption proves manageable.
Key takeaways
- The speakers said domestic investors remain bullish on India, while foreign investors are still cautious and more focused on relative growth across markets.
- Chetan Ahya cited bank credit growth of 17.7% year-on-year and passenger vehicle sales up 27% in May as signs that India’s growth trend is still improving.
- Ridham Desai said India is trading at its lowest relative multiple in 35 years, arguing that the market is attractive for long-term investors despite weaker near-term relative growth.
- The speakers said policy steps to remove withholding tax on debt investors and support foreign-currency borrowing should boost debt inflows over the next 12 months.
- Ridham Desai said financials and industrials look especially attractive, with consumer names also strong and IT services a possible dark horse.
- Chetan Ahya said India still needs more action to improve manufacturing competitiveness and attract longer-term capital inflows, including FDI.
Notable quotes
“Domestic investors look that they are bullish and foreign investors continue to stay rather cautious on the Indian markets”
“bank credit growth is growing as of the last bi-weekly data point that we got, it's growing at 17.7% year-on-year”
“this is the lowest relative multiple that India has traded at”
“The removal of taxation on debt investors will make a difference”
“I see the banks in a very sweet spot. Balance sheets are in pristine condition”
How the episode opens
Welcome to Thoughts on the Market. I'm Chetan Ahya, Morgan Stanley's Chief Asia Economist. — And I'm Ridham Desai, Morgan Stanley's Head of India Research and Chief India Equity Strategist. — Today, the biggest takeaways from our India Investment Forum in Mumbai. From the shifting outlook for India's markets and flows to the sectors driving the next phase of corporate earnings and capex. It's Friday, June 12th at 7:00 p.m. in Hong Kong.
And 4:30 p.m. in Mumbai. — Ridham, Morgan Stanley's India Investment Forum took place in Mumbai last week and I was there with you. These events are a great opportunity to speak with investors who come across from the globe to attend. Now that we have had a few days to process the conversations, what stood out to you? What was the biggest shift in investor sentiment that you picked on?
So, Chetan, I think it's been the case of a continuing story about India. Domestic investors look that they are bullish and foreign investors continue to stay rather cautious on the Indian markets. We could see that in the overall attendance.
In contrast, I think domestic investors were looking for the next stock that they wanted to buy. They were seeking opportunities and there was a lot of interest in meeting companies. Before we get into markets, let me turn back to you from a macro side.
India's growth story remains strong, but relative growth appears to be cooling. This is in contrast to markets like Japan, Taiwan, Korea, and the US. How should investors think about India's macro positioning in that context?
So, Ridham, when I look at the macro data in India, they're all indicating a meaningful upside in the growth trend. So, I'll just cite two key cyclically sensitive macro data points.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- india macro outlook
- capital flows
- sector opportunities
- emerging market outlook
- equity strategy
Watch the episode
Watch “India’s Next Market Phase” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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