RBI Poised for Extended Easing Cycle, Sensex to Hit 82,000 by December: Morgan Stanley
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Synopsis
The RBI is expected to pursue an extended easing cycle due to lower inflation and growth, with a cumulative easing of 100bps and two further cuts in 2025. Morgan Stanley estimates India's GDP growth at 6.1% for FY26, while projecting Sensex to reach 82,000 by December 2025 amidst global uncertainties.
Key Takeaways
- RBI's easing cycle expected to deepen.
- Projected GDP growth of 6.1% in FY26.
- Sensex forecast to reach 82,000 by December.
- Lower food inflation will support economic stability.
- Rural demand driving consumption growth.
New Delhi, April 15 (NationPress) Declining inflation and sluggish growth are expected to enable the RBI to implement a more extensive easing cycle, with a total reduction of 100bps and two additional cuts anticipated in 2025, according to a report by Morgan Stanley released on Tuesday. The report estimates India's GDP growth at 6.1 percent for FY26 amid global uncertainties.
The analysis also forecasts the Sensex to reach 82,000 by December 2025, representing a 9 percent increase from its current position.
"India's low beta is allowing it to significantly outperform during the global selloff, even as the index may approach multi-month lows. Key catalysts specific to India include ongoing dovish measures from the RBI, stimulus through GST rate reductions, a potential trade agreement with the US, and forthcoming growth data," the report stated.
Morgan Stanley anticipates lower food inflation and reduced oil prices, keeping both food and non-food inflation at manageable levels.
"We project inflation to average 4 percent in FY26, with the trend in the upcoming months remaining distinctly below the 4 percent threshold," it added.
Regarding GDP growth, the global brokerage noted that despite the US administration postponing reciprocal tariffs on all nations except China for 90 days (with a baseline tariff set at 10 percent), the modifications in tariff policies introduce uncertainty that could impact business confidence.
"In our base scenario, we believe that India and the US will successfully negotiate and implement a bilateral agreement in the coming months. However, as long as tariffs between the US and China remain high, global growth and trade are likely to suffer," the report indicated.
In India, consumption is on the rise, fueled by rural demand stemming from stronger agricultural performance. Capital expenditure is underpinned by normalizing public spending, while private capex continues to lag.
"Domestic growth is bolstered by enhanced government expenditure and a dovish RBI. We believe India's medium-term earnings cycle remains intact," the report concluded.
The government is expected to maintain the fiscal consolidation outlined for FY26, as it collects additional revenue from fuel tax hikes, which will partially counterbalance the decline in tax buoyancy (having announced a Rs 2 per liter increase in excise duty for petrol and diesel, contributing an additional 0.1 percent of GDP as revenue).
