New Delhi, Feb 6 (NationPress) India’s growth trajectory is poised for acceleration, supported by the reflation initiatives of the RBI and the government through measures like rate cuts, bank deregulation, and liquidity infusion. Ongoing capital expenditures, tax reductions, and a relatively stimulating budget are key factors, according to a report by Morgan Stanley released on Friday.

The report indicates that India’s hawkish macroeconomic environment following the Covid pandemic is now unwinding. Enhanced trade agreements and improved relations with China are also contributing factors.

“Indian equities are currently benefiting from a unique combination of affordable relative valuations, lackluster past performance, robust policy stimulation, and a corresponding growth upcycle. This is coupled with a undervalued currency, weak foreign investments, and the potential for a new buyback cycle,” the report noted.

The global brokerage anticipates an increase in buybacks due to an improved taxation framework and modest net stock flows.

The diminishing impact of oil on GDP and the growing share of exports, particularly in the services sector, along with fiscal consolidation, indicate a reduction in the savings imbalance.

This scenario is expected to facilitate structurally lower real interest rates. Concurrently, a decrease in inflation volatility, attributed to both supply-side adjustments and policy changes (including flexible inflation targeting), suggests that fluctuations in interest rates and growth rates may diminish in the upcoming years, according to the report.

“High growth coupled with low volatility, decreasing interest rates, and low beta will result in an elevated price-to-earnings (P/E) ratio. This situation also encourages a shift in household assets towards equities, with low beta emerging from enhanced macro stability and structural changes in household balance sheets,” the brokerage elaborated.

“We are ahead of the consensus and foresee positive earnings revisions; RBI policies are likely to sustain liquidity and loan growth. Several initiatives, including privatization, seem to be on the horizon, and foreign portfolio investment (FPI) positioning is currently low, but net FPI purchases will require a recovery in growth or diminishing bull markets elsewhere, alongside a rise in corporate issuances,” it added.

The report takes a capitalization-agnostic stance, suggesting that a macroeconomic trade is evolving, contrasting with a stock-pickers’ environment expected in 2025.