The Market Wants to Go Up...and There Are Fundamental Reasons

There's something that the world needs from us, which is our people and our services. Ridham Desai, MD and chief equity strategist India, Morgan Stanley

- Ram Sahgal

A steep reduction of India's twin deficits, robust economic growth underpinned by a recovery in government capex, lower real interest rates and rising profit-to-GDP ratio create the perfect mix for a larger portion of household savings to flow into equities. These factors set the stage for a sustained bull market, interspersed with a possible correction or two over the next few years, believes Ridham Desai, managing director and chief equity strategist India, Morgan Stanley.

While the Indian economy is resilient enough to weather the ongoing tariff storm kicked up by the US, Desai remains watchful of the next round of negotiations for a bilateral trade agreement between the two countries and the ensuing second-order impact of the US actions on Indian corporate confidence and capex cycle, which he believes are more relevant than the import duties. Edited excerpts:

What do you see as the impact of US's 25% tariff and penalty on Indian goods on the country's economy and markets?

In FY25, India's exports to the US were at $86.5 billion, while its trade surplus with the US was $40.8 billion (1% of GDP). Within sectors, India's exports of electrical machinery are the highest at $15.9 billion, followed by pearls and other precious and semi-precious stones at $10 billion FY25. In terms of share of India's exports to the US, textiles make up close to half of the exports, while the share of pharma products is ~40%.

That said, energy, automobiles/auto parts and pharma are excluded from the July 30 announcement. Again, talks are still on, and the final tariffs are likely to be different and probably lower.