Lower inflation and slower growth should allow the RBI to respond with a deeper easing cycle, with a cumulative easing of 100bps and two more cuts in 2025
NEW DELHI — Lower inflation and slower growth should allow the RBI to respond with a deeper easing cycle, with a cumulative easing of 100bps and two more cuts in 2025, a Morgan Stanley report said on Tuesday, pegging India's GDP growth at 6.1 per cent for FY26 amid global uncertainties.
The report also projected Sensex at 82,000 by December 2025, 9 per cent above the current level.
"India's 'low beta' is helping it to significantly outperform amid the global selloff, even while the index could reach multi-month lows. Key India-specific catalysts include continuing dovish actions from the RBI, stimulus through GST rate cuts, a trade deal with the US, and incoming growth data," said the report.
Read: RBI’s move to inject Rs 1.9 lakh crore liquidity seen as positive for banks
Morgan Stanley sees lower food inflation and lower oil prices, keeping food and non-food inflation at benign levels.
"We expect inflation to average 4 per cent in F2026, with the trend in the next few months remaining decisively below the 4 per cent mark," it maintained.
On the GDP growth, the global brokerage said that even as the US administration has delayed reciprocal tariffs on all countries barring China for 90 days (baseline tariff set at 10 per cent), opening up the possibility of negotiations and deals, the changes in tariff policies pose uncertainty which will weigh on business sentiment.
"In our base case, we assume that India and US will be able to conclude and implement a bilateral deal over the next few months. However, to the extent tariffs between the US and China remain at elevated levels, global growth and trade are likely to take a hit," the report stated.
In India, consumption is improving, driven by rural demand via stronger agricultural growth. Capex is supported by public spending normalising while private capex remains weak.
"Domestic growth has support from improved government spending and a dovish RBI. India's medium-term earnings cycle is still intact, in our view," the report mentioned.
The government is likely to continue with the fiscal consolidation penciled in for F2026, as it garners extra revenues from the fuel tax increases, which will partly offset the lower tax buoyancy (it has announced a Rs 2 per litre increase in petrol and diesel excise duty, which adds 0.1 per cent of GDP as extra revenue).