Morgan Stanley on Monday lowered India’s growth forecast in FY25 from 7 per cent to 6.7 per cent, on the back of weaker-than-expected high-frequency growth data for the second quarter, which is anticipated to grow at a slower pace of 6.3 per cent.
Despite this dip, Morgan Stanley projected that growth may rebound to approximately 6.7-6.8 per cent in the second half of FY25, driven by improved agricultural output and increased government spending.
“Post the October data, more data points related to November are available which point to a likely trend of continued recovery. Government cash balance trend showed a drop in October and early November, which will likely lead to a pickup in spending, while vehicle registration data for November is showing a mixed trend with PV sales lower and TW sales rising on a YoY basis,” the report said.
“Further, credit card spending has improved comparing post festive spending this year vs previous year. We believe that a pickup in government spending and the start of the wedding season (higher number of auspicious days on a YoY basis) will help lift demand in QE Dec,” it added.
Furthermore, the financial services company also maintained its forecast for FY26 and FY27 at a steady 6.5 per cent, noting that domestic demand will remain a key growth driver in the coming years.
Inflation is projected to moderate to 4.3 per cent in FY26, lower than 4.9 per cent in FY25, attributed to prudent monetary policy and stable commodity prices.
Morgan Stanley also expects the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) to implement rate cuts in its April meeting, viewing moderation in inflation.
