Mumbai, Aug 4 (NationPress) A recent report indicates that India is poised to enhance its share of global output in the upcoming decades, bolstered by strong foundational factors including significant population growth, a thriving democracy, policies focused on macroeconomic stability, improved infrastructure, an expanding entrepreneurial class, and enhanced social outcomes.

The findings from Morgan Stanley Research suggest that these strengths will position India as one of the most attractive consumer markets globally, spearhead a substantial energy transition, elevate the manufacturing sector's contribution to GDP, and increase the credit-to-GDP ratio.

Anticipated reductions in oil intensity within GDP, a rise in exports—particularly in services—and fiscal consolidation, which is expected to lead to a primary surplus in three years, will help mitigate saving imbalances and maintain structurally lower real interest rates.

Morgan Stanley further noted that a reduction in inflation volatility, driven by supply-side enhancements and flexible inflation targeting, will contribute to reduced fluctuations in interest rates and economic growth.

This blend of robust growth, minimal volatility, and declining interest rates supports elevated market valuations and encourages households to allocate a larger portion of their savings into equities.

While immediate market returns depend on confidence in the growth trajectory, the brokerage's outlook surpasses consensus expectations.

It observed that the recent slowdown in earnings growth since the second quarter of FY25 seems to be concluding, although market confidence may still be wavering.

Potential catalysts include a dovish stance from the central bank, clarity on global growth scenarios, GST rate adjustments, a conclusive trade agreement with the US, increased capital expenditure announcements, a surge in loan growth, improved high-frequency economic indicators, and better trade relations with China.

However, risks such as sluggish global growth, geopolitical tensions, and disruptions in critical supply chains, including rare earths and fertilizers, remain a concern.

In its investment strategy, Morgan Stanley favors domestic cyclical sectors over defensive and externally-facing sectors, maintaining overweight positions in financials, consumer discretionary, and industrials.

It continues to be underweight in energy, materials, utilities, and healthcare, predicting that the current market environment will favor stock pickers rather than macro-driven strategies.