Podcast Summary: "India Outperforms with High Growth and Low Volatility"

Title: Thoughts on the Market
Host/Author: Morgan Stanley
Release Date: June 24, 2025

Introduction

In the June 24, 2025 episode of Thoughts on the Market, Morgan Stanley's Chief Asia Equity Strategist, Jonathan Garner, delves into the robust performance of India's equity market. Garner elucidates the factors driving India's superior economic growth and market resilience, positioning India as a standout performer both within Asia and on the global stage.

1. India's Stellar Equity Performance

Jonathan Garner opens the discussion by highlighting India's impressive equity returns over the past five years. He states:

"MSCI India has delivered a total return in US Dollars of 145% versus 94% for global equities and just 39% for emerging markets." (00:26)

This stark contrast underscores India's exceptional performance relative to both global and emerging market indices. Garner emphasizes that Indian equities have consistently outperformed their peers, making them the most favored market within the Asian region.

2. Key Drivers of India's Market Preference

Garner identifies three primary reasons why Indian equities are highly preferred:

• Superior Economic and Earnings Growth:
  "India's superior economic and earnings growth" (00:48) is a cornerstone of its market attractiveness. The country's robust GDP growth and improving corporate earnings set a strong foundation for sustained market performance.

• Lower Exposure to Trade Tariffs:
  India benefits from a "lower exposure to trade tariffs" (00:48), especially amidst global trade tensions. This limited vulnerability shields the economy from external shocks that adversely affect other emerging markets.

• Strong Domestic Investor Base:
  A "strong domestic investor base" (00:48) ensures consistent capital inflows and underpins the equity market. Garner notes that systematic investment plans, driven by a young and urbanizing population, reached over US$3 billion in May, highlighting the vigor of domestic investment.

These factors collectively contribute to India's structural outperformance not just in Asia but globally, all while maintaining significantly lower volatility compared to peer markets (00:54 - 00:58).

3. Macroeconomic Outlook

Garner paints an optimistic macroeconomic picture for India:

• GDP Growth Projections:
  "We expect India to account for 20% of overall incremental global GDP growth in the coming decade." (01:05)
  The first quarter saw GDP growth surpassing 7%, with forecasts exceeding 6% in the medium term—anticipated to be the highest among major economies (01:44 - 01:47).

• Infrastructure and Manufacturing Competitiveness:
  Enhanced infrastructure in power, ports, roads, and freight transport systems, along with investments in social infrastructure like water, sewerage, and hospitals, are bolstering manufacturing competitiveness (01:12 - 01:25).

• Growing Middle Class and Consumption:
  India's expanding middle class presents vast market opportunities across diverse product categories, fueling robust domestic consumption (01:25 - 01:31).

• Investment and Structural Reforms:
  A "strong investment cycle led by public and private capital expenditure" coupled with ongoing structural reforms, including in the legal realm, further fortify the economic landscape (01:31 - 01:42).

4. Corporate Earnings Growth

The episode underscores India's formidable corporate earnings trajectory:

• Historical Performance:
  Since the end of the COVID-19 pandemic, MSCI India has achieved approximately 12% per annum dollar earnings growth (01:47 - 01:50).

• Future Projections:
  Forecasts indicate earnings per share growth of 14% and 16% over the next two fiscal years, substantially outpacing the low single digits seen in broader emerging markets (01:50 - 02:03).

5. Short-Term Growth Drivers

Several immediate factors are poised to propel India’s economic and market growth:

• Private Capital Expenditure Cycle:
  An "emerging private capex cycle" is signaling increased business investments (02:13).

• Corporate Balance Sheet Releveraging:
  Companies are in the process of "releveraging their corporate balance sheets," which is expected to enhance financial stability and investment capacity (02:13).

• Rise in Discretionary Consumption:
  A structural uptick in discretionary spending indicates heightened consumer and business confidence following last year's elections (02:13 - 02:22).

6. Resilience to Global Trade Disruptions

India's market exhibits remarkable resilience to global trade and tariff disputes:

• Minimal Export Exposure:
  Exports to the US constitute only 2% of India's GDP, a fraction compared to 10% in Thailand or 14% in Taiwan (02:27 - 02:36). Overall, India's total goods exports represent around 12% of its GDP, reducing susceptibility to international trade tensions (02:36 - 02:48).

• Services Sector Advantage:
  India's substantial services sector remains largely unaffected by tariff actions and benefits from advancements in artificial intelligence (AI) adoption, positioning it as a beneficiary in the evolving global economy (02:48 - 02:55).

7. Robust Domestic Investment Environment

The strength of India's domestic investment is a pivotal factor in its market stability:

• Individual Stock Ownership:
  India boasts "strong individual stock ownership," fostering persistent retail buying that sustains equity market demand (02:55 - 03:18).

• Systematic Investment Plans (SIP):
  Driven by a young and urbanizing population, SIP flows have reached record highs, contributing over US$3 billion in May alone. This trend ensures steady capital inflows and a sustained domestic bid for stocks (03:14 - 03:18).

8. Market Volatility and Valuations

India's market presents a compelling risk-return profile:

• Valuation Metrics:
  With valuations slightly above emerging market averages, India maintains an attractive price point relative to its growth prospects (03:17 - 03:26).

• Market Beta and Volatility:
  India's market beta to global equities has decreased to approximately 0.4 from 1.1 a decade ago, indicating reduced sensitivity to global market movements. Additionally, price volatility remains significantly lower than other major emerging markets (03:26 - 03:42).

These attributes make India a particularly appealing investment destination during periods of global market volatility (03:42 - 03:56).

Conclusion

Jonathan Garner concludes that India's combination of high economic growth, robust corporate earnings, minimal trade vulnerability, and a strong domestic investment base, all underpinned by lower market volatility, positions it as an attractive equity market in uncertain global times. The structural advantages and forward-looking reforms further reinforce the positive long-term outlook for India's markets.

Notable Quotes

• "MSCI India has delivered a total return in US Dollars of 145% versus 94% for global equities and just 39% for emerging markets."
  — Jonathan Garner (00:26)

• "India's superior economic and earnings growth, lower exposure to trade tariffs, and a strong domestic investor base."
  — Jonathan Garner (00:48)

• "We expect India to account for 20% of overall incremental global GDP growth in the coming decade."
  — Jonathan Garner (01:05)

• "Since the end of COVID MSCI India has delivered around 12% per annum dollar earnings per share growth versus low single digits for emerging markets overall."
  — Jonathan Garner (02:01)

• "India's very large services sector's exports are not exposed to tariff actions and are actually early beneficiaries of AI adoption."
  — Jonathan Garner (02:48)

• "Systematic investment plan flows driven by a young urbanizing population are making new highs and in May amounted to over US$3 billion."
  — Jonathan Garner (02:55)

This comprehensive analysis encapsulates the key discussions and insights from the Thoughts on the Market podcast episode, providing a clear understanding of why India stands out as a high-growth, low-volatility equity market.