Can Indian market's strong run continue? Here's what Morgan Stanley predicts
RBI’s target band in July and August on account of higher food prices, which raised investor concern about whether RBI would have to hike rate again to bring inflation back under control. However, the vegetable prices that spiked and led to this acceleration in inflation were of a short-duration nature and their prices have since reversed. Over the coming quarters, MS India economist, Upasana Chachra, expects that headline inflation will remain within the target range.
It is against this backdrop that the brokerage doesn’t foresee a resumption of rate hikes. Commenting on the current account deficit (CAD), MS informed that over the past 4 quarters, India’s CAD had been staying with the comfort zone – 2.5 percent of GDP – despite a robust expansion. MS India economist Upasana Chachra projects that the current account deficit will remain below 2 percent of GDP in both F24 and F25, suggesting that it will be well within the comfort zone and should not give rise to external funding concerns.
Moreover, while the rise in US rates over the last four months did put some pressure on most EM currencies, the rupee has been less volatile and MS believes a combination of improved macro stability and structural reforms supporting healthy capital inflows protected the trends in balance of payments. Any rise in oil prices tends to bring concerns about India’s macro stability indicators, believes MS. "India remains a net oil importer with an oil trade balance of -2.6 percent of GDP.
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