Bullish On Indian Economy But Not So Bullish On Markets: Morgan Stanley's Chetan Ahya

Bullish on the Indian economy, but not so bullish on Indian markets. That’s the mood at the Morgan Stanley India Investment Forum, which is being hosted in Mumbai.

The forum is being held in the backdrop of a wave of optimism sweeping across India’s stock markets and the India growth story making big headlines.

The benchmark indices, Nifty 50 and Sensex, are in close vicinity of their all-time highs. The news from the economic front has brought back fresh hopes, with the fourth quarter GDP at 6.1%.

BQ Prime has been bringing to its readers and viewers expert voices from the conference. In this part of the series we bring an exclusive interview with Morgan Stanley’s Asia Chief Economist Chetan Ahya.

Participants at the conference are "very bullish on the economy, but they find the valuations a tad bit expensive compared to other emerging markets,'' said Chetan Ahya in an interview with Muralidhar Swaminathan. "They are bullish, but they are not putting in the next dollar in a rushed manner," he added.

In the context of World Bank's estimate of 2.1% slowdown in global growth in 2023, the real interest rates in India are not as high as to constraint domestic demand and improvement in disposable income, Ahya said.

Going forward, consumption growth will broaden out from services to goods and even the lower and middle income families will start spending, according to him.

This also means that the government should be able to attain a fiscal deficit of 5.9%, he said.

The Reserve Bank of India is expected to cut rates in the first quarter of next year and the fourth quarter of this year, he said, depending on how inflation evolves and the nature of the Fed policy.

In case of a mild recession India and China will do fine, but if the recession is deeper, the situation could become subversive, at least for a short time, Ahya said.

However, the risk of a deeper recession is relatively low because of the balance in labour market, and both corporate and household balance sheets are beeming in good shape, according to him.

As of now, there is no solid evidence of the possibility of India taking away China's market share of global exports, but India's outsourcing will grow faster than China, Ahya said. This will massively increase the country's market share.

India has a market share of 4.6% in goods and services, which is the best among its emerging market peers, he noted.

Plus, the government's focal shift from distribution to capital expenditure, infrastructure spending and employment has been the most important shift the country has exercised in the past five years and this needs to continue, Ahya said.