Navigating India's Market Phase: Growth, Policy, and Capital Flows

This guide is based on a transcript from the podcast 'Thoughts on the Market' featuring Chetan Ahya and Ridham Desai from Morgan Stanley, published on June 12, 2026.

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   Chief Asia Economist Chetan Ahya joins Head of India Research and Chief India Equity Strategist Ridham Desai to break down India’s macro outlook, capital flows and sector opportunities.

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   Read more insights from Morgan Stanley.

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   ----- Transcript -----

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   Chetan Ahya: Welcome to Thoughts on the Market. I'm Chetan Ahya, Morgan Stanley's Chief Asia Economist.

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   Ridham Desai: And I'm Ridham Desai, Morgan Stanley's Head of India Research and Chief India Equity Strategist.

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   Chetan Ahya: Today, the biggest takeaways from our India Investment Forum in Mumbai. From the shifting outlook for India's markets and flows to the sectors driving the next phase of corporate earnings and CapEx.

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   It's Friday, June 12th at 7PM in Hong Kong.

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   RidhamDesai: And 4:30PM in Mumbai.

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   Chetan Ahya: Ridham, the Morgan Stanley's India Investment Forum took place in Mumbai last week, and I was there with you.

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    These events are a great opportunity to speak with investors who come across from the globe to attend.

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    Now that we have had a few days to process the conversations, what stood out to you?

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    What was the biggest shift in investor sentiment that you picked on?

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    Ridham Desai: So, Chetan, I think it's been the case of a continuing story about India.

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    Domestic investors look that they are bullish, and foreign investors continue to stay rather cautious on the Indian markets.

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    We could see that in the overall attendance.

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    In contrast, I think domestic investors were looking for the next stock that they wanted to buy.

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    They were seeking opportunities, and there was a lot of interest in meeting companies.

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    Before we get into markets, let me turn back to you from a macro side. India's growth story remains strong, but relative growth appears to be cooling. This is in contrast to markets like Japan, Taiwan, Korea, and the US. How should investors think about India's macro positioning in that context?

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    Chetan Ahya: So, Ridham, when I look at the macro data in India, they're all indicating a meaningful upside in the growth trend.

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    So I'll just cite two key cyclically sensitive macro data points.

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    One is the banking system credit growth, and number two is the auto sales, particularly the passenger vehicle.

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    So bank credit growth is growing as of the last biweekly data point that we got.

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    It's growing at seventeen point seven percent year-on-year, and car sales are growing at twenty-seven percent in the month of May.

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    But as you were mentioning earlier, the relative growth opportunity is a challenge for India and to just share the numbers on the earnings growth for the first quarter that we saw across the region.

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    So we saw Korea's earnings growth at one hundred and seventy percent.

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    We saw Taiwan's earnings growth at forty-eight percent year on year.

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    The US has seen a growth of about twenty-seven percent year on year.

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    So in that context, when India is reporting thirteen percent growth, it's becoming a challenge for investors to look for opportunities in India relative to other markets.

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    Either they are more focused on the other markets than India.

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    So let me come back to you, Ridham.

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    Staying with the investment implications, India projects stable valuations and strong corporate earnings, but its relative growth advantage has narrowed.

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    How should investors reconcile this contradiction?

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    Ridham Desai: If I go back thirty-five years, as long as we have the MSCI index series, and as far as I have been in this industry, this is the lowest relative multiple that India has traded at.

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    And indeed, growth last year was weak.

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    But if you see QOQ, we have started to accelerate.

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    The broad market earnings growth trajectory has shown a doubling in the quarter that ended March over the quarter that ended December.

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    But it underscores the point you made about the relative growth complex. It's clearly not in India's favor. And a lot of the capital in the world is short-term oriented, and it cares for what growth is gonna come in the next quarter or two. And that's the state of the market right now.

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    However, what I would say is that equities is a quintessential long-duration asset class.

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    In the long run, what matters is terminal growth.

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    I don't really think India's terminal growth has moved much.

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    It remains far superior to a lot of other countries around the world.

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    And therefore, I think this does present itself as a great opportunity for a long-term investor while the markets are digesting this relative growth disadvantage that India seems to have over the next, say, three or four quarters.

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    Chetan Ahya: And Ridham, another theme from the forum was policy action to attract capital.

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    Policymakers announced a number of measures right as our conference ended and they aimed to withdraw withholding tax on debt investors, also providing banks with an incentive to take up more dollar borrowing.

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    How central are these measures to sustaining foreign inflows into Indian markets?

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    Ridham Desai: I think the measures taken by policymakers are very important, probably amongst the most important policy actions this year. The removal of taxation on debt investors will make a difference. The provision for hedging to external commercial borrowings as well as to foreign currency deposits will make a difference.

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    It should boost flows into India over the next twelve months. That said, these measures may not help the equity flows because the equity flows, I think, are going to depend on the relative growth situation. Now, there's only that much India can do to lift its growth.

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    It may accelerate to the high teens. So growth elsewhere needs to decelerate for equity investors to return. Or India needs to see the start of a major IPO cycle because in primary issuances, foreigners do come to buy, and that may change the net picture on FBI flows in the equity markets.

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    But as far as the debt markets are concerned, I think the measures taken last week are going to prove to be quite potent, and India should see the benefits accruing over the next few weeks and months.

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    Chetan, from your perspective, how important is the policy backdrop right now in determining whether India can keep attracting long-term global capital despite more competitive returns elsewhere in the short run?

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    Chetan Ahya: So Ridham, I think the key focus for the policymakers had been with these measures to boost short-term capital inflows to stabilize the currency.

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    There has been a balance of payment deficit.

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    So from that perspective, the short-term capital inflow augmentation effort as you mentioned, has been the correct move.

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    But from the long-term perspective, we think that the government needs to boost competitiveness of the Indian manufacturing.

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    Because in the context in which AI could affect India's services exports, there is a need to augment more export receipts from the manufacturing sector.

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    At the same time, if they improve the competitiveness of the manufacturing sector, it will help India to attract more capital inflows from long-term investors for the purpose of FDI.

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    And the good news is that the government is on it.

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    They are taking a number of measures to boost that competitiveness in the manufacturing.

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    But we think that there is more action needed and hopefully in the intention to improve the balance of payment dynamics and exports from manufacturing sector, we will see more actions from the government in the coming months.

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    Ridham Desai: Chetan, you've also written extensively about the structural capital spending cycle in Asia and India. Can you walk us through the key details here, especially in the Indian context?

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    Chetan Ahya: I think the key story that we are observing, it's sort of more or less global, but definitely very clearly seen in Asia, that there seems to be a super cycle for CapEx as well as industrial activity.

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    This CapEx cycle is effectively driven by spending in four key sectors, and that is AI and AI-related digital infrastructure, energy, defense, and industrial onshoring-related CapEx.

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    Now, as far as India is concer