Foreign brokerage Morgan Stanley believes general elections in May next year is the key event to track in India, as it assumes continuity both in government and policy in its base scenario. Morgan Stanley said any surprise outcome is likely to have implications for growth and macro stability. In a note, the foreign brokerage reportedly said such an outcome may lead to about 30 per cent fall in the market.
A “credible seat-sharing arrangement” within the opposition alliance led by Indian National Congress, called I.N.D.I.A, will “polarizes the general elections and reduce the predictability of the outcome in May,” Bloomberg in a note suggested Morgan Stanley as saying on Monday.
Earlier in its 2024 Global Economics Outlook note published on November 12, Morgan Stanley said: “A strong political mandate that supports reform measures alongside an improvement in external demand would drive faster growth. The downside scenario is driven by a delay in the capex cycle from weaker business confidence because of a surprise political outcome and/or a drag from the external environment,” it said.
The foreign brokerage in the November 12 note expected India’s growth to track at around 6.5 per cent over the next two years, supported by sustained domestic demand momentum. Macro stability, it said, is likely to improve and remain within the comfort range. “We expect a shallow rate cut cycle in 2024. General elections in May 2024 are a key risk,” it said.
Domestic demand remains resolute, Morgan Stanley said adding that key indicators such as PMIs tracking above the 50 mark since August 2021 and real credit growth averaging at 14 per cent, and real GST collections at 9.8 per cent in 2023 so far.
Looking ahead, it expects a robust trend in domestic demand led by strength in corporate and financial sector balance sheets and the follow-through of policy reform measures.
“We expect consumption to recover further in 2024, driven by the narrowing gap between rural and urban demand and strength in services demand. Improvement in consumer sentiment back to pre-pandemic levels bodes well for the consumer recovery while rural consumption is likely to be supported by the improving trend in real rural wages,” it said.
In another note, Morgan Stanley reportedly said the elections may disrupt the tranquility of India’s stock market and that even of stocks rise in the run-up to the Lok Sabha elections in 2024, in line with historical trends, there is a chance that the markets may decline as much as 30 per cent, if the election outcome turns out to be contrary to the market expectations.
If the opposition’s umbrella alliance, INDIA, comes up with a “credible seat-sharing arrangement” it can polarize the general elections and reduce the predictability of the outcome in May, analysts at Morgan Stanley point out.
“A potential change in government could lead to changes in the direction of policy reform and execution leading to poor investment sentiment,” a Bloomberg report quoted the investment bank as saying.
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Source: businesstoday.in
