Morgan Stanley has identified the upcoming 2024 union government elections in India, slated for May next year, as a critical event with potential ramifications for the country's economic and market landscape. In its fundamental scenario, the foreign brokerage envisions continuity in both government leadership and policy direction. However, Morgan Stanley emphasizes that any unforeseen electoral outcome could significantly impact growth and macroeconomic stability, potentially resulting in a substantial market downturn of around 30%.
The brokerage underscores the importance of a "credible seat-sharing arrangement" within the opposition alliance (I.N.D.I.A) as a factor that could introduce polarization in the general elections, reducing the predictability of the outcome in May. This factor is perceived as a risk that might disrupt the established tranquility in India's stock market. Even if stocks experience an ascent in the run-up to the Lok Sabha elections in 2024, as historical trends suggest, the analysts at Morgan Stanley caution that the markets might witness a decline if the election outcome contradicts market expectations.
In a broader economic context, Morgan Stanley anticipates India's growth to maintain a trajectory of around 6.5% over the next two years, supported by sustained domestic demand momentum. Despite this positive outlook, the brokerage recognizes the 2024 general elections as a key risk, envisioning a shallow rate cut cycle in 2024. This cautious stance is grounded in the belief that potential changes in the government could lead to shifts in policy reform and execution, thereby influencing investment sentiment negatively.
The brokerage acknowledges the resilience of domestic demand, citing key indicators such as PMIs consistently above the 50 mark, real credit growth averaging at 14%, and robust real GST collections in 2023. Looking ahead, Morgan Stanley foresees a robust trend in domestic demand propelled by the strength of corporate and financial sector balance sheets, coupled with the continuation of policy reform measures.
In summary, while Morgan Stanley acknowledges the positive economic indicators and domestic demand resilience, it remains watchful of the potential impact of political dynamics on the market, emphasizing the need for careful consideration and strategic planning as India approaches this critical electoral juncture.
