Morgan Stanley lowers forecast for India’s FY25 growth to 6.7% over weaker-than-expected Q2 data

Morgan Stanley revised its forecast for India’s FY25 growth reducing it to 6.7% from 7% due to weaker-than-expected high-frequency growth data for Q2, which is projected to expand at a slower rate of 6.3%.  

However, it anticipates a recovery in growth during the second half of FY25, forecasting an uptick to around 6.7-6.8%, driven by stronger agricultural output and increased government spending.  

“Following the October data, more recent indicators for November point to a continued recovery trend. Government cash balances declined in October and early November, suggesting a likely boost in spending. Meanwhile, vehicle registration data for November shows a mixed picture, with passenger vehicle (PV) sales lower and two-wheeler (TW) sales increasing year-on-year,” it said in a report. 

Morgan Stanley also kept its growth forecast for FY26 and FY27 steady at 6.5%, with domestic demand expected to remain the key growth driver. The firm expects inflation to ease to 4.3% in FY26, down from 4.9% in FY25, driven by sound monetary policy and stable commodity prices.  

It also anticipates that the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) will implement rate cuts in April, responding to moderating inflation. 

The report identified food price management as the primary inflation challenge over the past two years but projects inflation, excluding food, to ease. The firm expects food prices to stabilise over the next year due to favourable supply conditions, but it also anticipates a slight increase in core inflation, indicating that while food price pressures may ease, other inflationary factors may emerge. 

Earlier, Morgan Stanley downgraded China to slight “underweight” from “equal weight” in emerging markets, with analysts noting that efforts to revive the economy and a Republican sweep of Congress and the White House could significantly impact markets. 

“We expect even stronger headwinds on corporate earnings and market valuation in the coming months,” Morgan Stanley analysts said in a note dated November 17.