New Delhi, Feb 6 (IANS) India’s growth cycle is set to accelerate backed by reflation effort of the RBI and the government via rate cuts, bank deregulation and liquidity infusion, continuing capex, tax cuts and relatively stimulating budget, a Morgan Stanley report said on Friday.

Thus, India’s hawkish macro set up post-Covid is now unwinding. The trade deals and thawing of relations with China add to the mix, the report mentioned.

“Indian stocks enjoy a rare combination of inexpensive relative valuations, poor trailing performance, strong policy stimulus and a consequent growth upcycle, an undervalued currency, weak foreign positioning and potentially a new buyback cycle,” it mentioned.

The global brokerage expects more buybacks as a result of improved taxation regime and modest net flows into stocks (issuances minus buybacks).

The falling intensity of oil in GDP and rising share of exports in GDP, especially services, and fiscal consolidation imply a lower saving imbalance.

This will allow structurally lower real rates. At the same time, lower inflation volatility as a result of both supply-side and policy changes (flexibility inflation targeting) mean that volatility in interest rates and growth rates is likely falling in coming years, said the report.

“High growth with low volatility and falling interest rates and low beta result in higher price to earnings (P/E). This also supports the shift in household balance sheets toward equity. The low beta itself emanates from improved macro stability and the structural shifts in household balance sheet toward equities,” the brokerage explained.

“We are ahead of the consensus and expect positive earnings revisions; RBI policy, which we think will support liquidity and loan growth; several measures including privatisation are likely underway; and FPI positioning remains near lows but net FPI buying will need growth to recover and/or bull markets elsewhere to fade plus a rise in corporate issuances,” it added.

The report said it is capitalisation-agnostic and think a macro trade is unfolding (in contrast to the stock pickers’ environment in 2025).

—IANS

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