India Outperforms with High Growth and Low Volatility

Summary

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

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

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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.

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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.

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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).

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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).

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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).

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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).

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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).

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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).

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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).

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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.

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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)

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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.

Transcript

[A]

Welcome to Thoughts on the Market. I'm Jonathan Garner, Morgan Stanley's Chief Asia Equity Strategist. Today I'll discuss why we remain positive on India's long term equity story. It's Tuesday 24 June at 9am in Singapore. We've had a long standing, bullish outlook on the Indian economy and its stock market.

[B]

In the last five years, MSCI India has delivered a total return in US.

[A]

Dollars of 145% versus 94% for global equities and just 39% for emerging markets. Indian equities are our most preferred market within Asia for three key first, India's superior economic and earnings growth second, lower exposure to trade tariffs and third, a.

[B]

Strong domestic investor base.

[A]

And all of this adds up to.

[B]

Structural outperformance not just in Asia but.

[A]

Indeed globally and with significantly lower volatility.

[B]

Than peer group markets.

[A]

So let's dive deeper. To start with the macroeconomic backdrop, we.

[B]

Expect India to account for 20% of overall incremental global GDP growth in the coming decade.

[A]

Manufacturing competitiveness is improving thanks to bolstered infrastructure in power ports, roads, freight transport systems, as well as investment in social infrastructure such as water, sewerage and hospitals.

[B]

Additionally, India's growing middle class offers market opportunities to companies across many product categories.

[A]

There's robust domestic consumption, a strong investment.

[B]

Cycle led by public and private capital.

[A]

Expenditure, and continuing structural reforms, including in the legal sphere.

[B]

GDP growth in the first quarter was.

[A]

More than 7% and our team expects.

[B]

Over 6% in the medium term, which would be by far the highest of the major economies. Furthermore, we continue to expect robust corporate earnings growth. Since the end of COVID MSCI India has delivered around 12% per annum dollar.

[A]

Earnings per share growth versus low single.

[B]

Digits for emerging markets overall and we forecast 14% and 16% over the next two fiscal years. Growth drivers in the short term include.

[A]

An emerging private capex cycle, releveraging of corporate balance sheets and a structural rise in discretionary consumption, signaling increased business and.

[B]

Consumer confidence after last year's elections. Another key reason that we're positive on.

[A]

India currently is its lower than average vulnerability to ongoing trade and tariff disputes.

[B]

Between the US and its trade partners. Exports of goods to the US amount.

[A]

To only 2% of India's GDP versus.

[B]

For example, 10% in Thailand or 14% in Taiwan. And India's total goods exports are only around 12% of GDP.

[A]

Moreover, for the time being, India's very large services sector's exports are not exposed to tariff actions and are actually early.

[B]

Beneficiaries of AI adoption. Finally, India's strong individual stock ownership means that there's persistent retail buying, which underpins the equity market. Systematic investment plan flows driven by a young urbanizing population are making new highs and in May amounted to over US$3 billion.

[A]

They provide consistent capital inflows and means.

[B]

That the domestic bid on stocks is.

[A]

Unlikely to fade anytime soon.

[B]

This provides a strong foundation for the.

[A]

Market and supports valuations which are slightly.

[B]

Above emerging market averages. It also means that its market beta.

[A]

To global equities are low and falling.

[B]

Approximately 0.4 versus 1.1 ten years ago, and price volatility is well below other major emerging markets.

[A]

All told, making India an attractive play in volatile times. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share thoughts on the market with a friend or colleague today.

[C]

The preceding content is informational only and based on information available when created. It is not an offer or solicitation, nor is it tax or legal advice. It does not consider your financial circumstances and objectives and may not be suitable for you.