The world is about to witness the biggest election in history.
This could herald a sea change for India’s economy, which has struggled with stagflationary-type
conditions over the past few years. Morgan Stanly think the incoming government will have to de-anchor inflation, raise capital productivity, improve the investment climate and de-lever private balance sheets to engineer a new growth cycle.
The equity and currency markets have chosen to be optimistic about the election
outcome and, therefore, about policy action and growth implications in the coming 12 months.
Thus, Morgan Stanley think that the equity market’s move relative to emerging markets will continue to occur before the elections rather than after them unless there is a material positive surprise in the outcome.
The economy needs a strong government for a new
cycle to start..
Morgan Stanley Research evaluate the macro, equity/credit
market, INR and industry implications for four election
scenarios:
(1) an absolute majority for the winning party,
(2) 220-230 seats for one of the two major coalitions,
(3)a more fragmented coalition with the lead party winning circa 180 seats, and
(4) a broad fragmented coalition with participation of a lead party only in a supporting
role.
Each of these scenarios would produce different policy responses and, hence, distinct growth outcomes.Morgan Stanley think Scenario 1 could accelerate GDP growth to circa 6.5-7.25% and raise market earnings growth to
25%.But, Scenario 4 could pull down these growth figures to 5.0-5.5% and 5% respectively.
Morgan Stanley India Company
Private Limited+
Ridham Desai
Ridham.Desai@morganstanley.com
+91 22 6118 2222
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