Morgan Stanley lifts India FY27 GDP forecast to 6.7% on demand strength

New Delhi: Morgan Stanley has raised India's FY27 growth forecast to 6.7% from 6.2%, citing strong domestic demand despite global uncertainties. While the ongoing Iran conflict and elevated oil prices could pressure growth, the firm believes urban demand, government spending on infrastructure and defence, and services exports will help offset the impact.

For FY28, it projects gross domestic product (GDP) growth of 7%. India's FY26 growth is estimated at 7.6%, based on government data.

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Morgan Stanley expects Q1FY27 growth at 6.5% year-on-year, reflecting pressure from high commodity prices and persistent supply chain disruptions. "Thereafter, as supply-side constraints ease and commodity prices moderate, we expect a gradual normalisation in activity, with growth converging to trend by Mar-27," said the report.

The firm expects oil prices to peak in the June quarter and average $87.5 per barrel in FY27.

Inflation is projected to average 4.7% in FY27 due to higher production costs, rupee weakness, and spillovers into core inflation. Although commodity price transmission to consumer inflation is likely to remain contained, wholesale inflation pressures may intensify because of imported inflation and currency weakness.

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The report said higher oil prices could widen the current account deficit to 1.8% of GDP, while weaker capital inflows may keep the balance of payment in deficit for a third straight year, increasing currency vulnerability.

Morgan Stanley also warned that rising input costs are likely to squeeze corporate margins and earnings.