Morgan Stanley Bets On Digital To Forecast $6 Trillion

Economy, Sensex At 1,30,000

On the two pillars of JAM and GST, the top team at Morgan Stanley Research has built a tower
of forecasts for the Indian economy.
The most important ones being...

 By 2027, India will be the world’s third-largest economy with a gross domestic product of $6
trillion.
 A rapid rise in consumer credit and credit to micro-, small- and medium-sized enterprises.
 Strong household consumption and a declining share of food in the consumption basket.
 A $200 billion e-commerce market—12 percent of India’s retail sector.

While the premise is a familiar one, the report, titled ‘India’s Digital Leap – The Multi Trillion
Dollar Opportunity’, attempts to connect the dots differently.
It argues that the Indian government’s effort to ensure that almost every household has a bank
account via the Jan-Dhan Yojana combined with the Aadhaar unique identification program and
mobile connectivity, and Goods and Services Tax-led digitization will yield big data, big revenue,
big growth and big gains in the equity markets.

Growth Booster
Digitization will boost GDP growth by 50-75 basis points and GDP growth will average 7.1
percent till 2027, says the Morgan Stanley report. The key areas of improvement will be...

 Better tax compliance.

 Improvement in public finances.
 Welfare spending efficiency.

The report points to India’s investment-to-GDP ratio averaging 27.9 percent compared to 30-35
percent for most Asian economies.

‘’Over the next decade, we expect investment-to-GDP ratios to average 34.3 percent,
contributing 3 percentage points to real GDP growth.’’
Morgan Stanley Research Report
It also forecasts a shift in household consumption, with expenditure moving to non-food items.
And it expects that higher tax revenues because GST will lower the fiscal deficit and public debt-
to-GDP ratio.
All of which will amount to a $6 trillion economy by 2027.
 ‘’On a per capita income basis, the changes would be even more profound. We estimate that per
capita annual incomes will likely reach $4,135 by FY2027, lifting India into an upper-middle
income status. To put this in perspective, per capita incomes in India by 2027 would be similar to
those of China in 2010.’’
Morgan Stanley Research Report

 Expect 10.1 percent CAGR in earnings (U.S. dollar terms)

 Project equity saving of between $420 billion and $525 billion over the next 10 years.
 The financial-savings-to-GDP ratio would rise to 13.5 percent, higher than the long-term
average of 11 percent.
 Leading indices could compound at around 25 percent in the coming five years.

Bull case for S&P BSE Sensex is 1,30,000 in 2027

Trading likely to rise from $21 trillion to $41 trillion in 2027
Key reasons why Morgan Stanley sees Sensex topping 1,00,000 pts even in the base case
scenario:
GST — ‘Advantage’
Morgan Stanley has identified the GST implementation as a disruption to smaller businesses
leading to job losses but has also said that subsequently, it is going to help lower the public
debt. Morgan Stanley said India’s political stability, privacy debate over Aadhaar and other
judicial decisions will remain crucial to India’s growth. However, the country’s digitization drive
would give the economy a great push.
Economic boom
India is expected to be a $6 trillion economy — the third largest in the world — in the next 10
years, helped by digitization, Morgan Stanley said in a report. India’s digitization drive would
provide a boost of 50-75 basis points to GDP growth in the coming decade.
India will achieve upper-middle income status by 2026-27, India’s real and nominal GDP growth
to compound annually by 7.1% and 11.2% respectively over the coming decade.
Better equity culture
Apart from some short-term teething problems including implementation of GST, there is scope
for visible shifts in economic activity starting in 2018. This would, in turn, eventually lead India
to be among the top five equity markets in the world with a market capitalization of $6.1 trillion
and the third-largest listed financial services sector around the globe with a market cap of $1.8
trillion by 2027, as domestic participation in equities strengthens.
Equity saving of $420-525 billion over the next ten years, versus the respective $60 billion and
$120 billion that households and foreign portfolios invested over the previous ten years.
Thriving consumer business
India’s consumer sectors alone are likely to add about $1.5 trillion over the next ten years to
the domestic equity markets. Accordingly, the stock markets are likely to remain robust as a
stronger economic growth should drive stronger corporate earnings growth. Not only this,
Morgan Stanley also projects gross FDI inflows at $120 billion by the financial year 2026-27,
almost double the current 12-month trailing run rate of $64 billion