Strong Balance Sheets, Supply-Side Reforms To Benefit India In Global Market Share Gain: Morgan Stanley

The crisis in the global banking system, especially in the US and Europe, has made the case for Asia’s outperformance even more compelling amid tailwinds like China’s reopening and healthy growth metrics in India, Morgan Stanley has said. It also said supply-side reforms are enabling India to gain market share in global goods and services exports, thus catalysing employment and investment.

It also said balance sheets in India for the financial and non-financial private sectors have been cleaned up over the years. So, the private sector is primed with a healthy risk appetite for expansion.

Morgan Stanley also said services trade surplus has been growing steadily even as its goods trade deficit has widened. Pick-up in services exports has provided an important offset to higher oil imports. Besides, credit growth in India is near multiyear highs, while PMIs too are holding at strong levels.

However, the report added that if the US enters a deep recession (ie GDP contracts by a percent or more), Asia would not be able to escape this downdraft. Just as in 2007-8, Asia would then likely recouple on the downside, at least during the worst point of the shock.

“However, as in 2010-11, Asia would probably be able to emerge quicker once financial conditions stabilise,” it said.

Morgan Stanley also said, “US bank loans are growing at 10 per cent Y (credit, which includes securities, is growing at 2.7%Y), but deposits are growing at -5 per cent Y. This gap between credit and deposit growth is even more pronounced for small banks (defined by the Fed as banks outside of the 25 largest banks by assets), where credit to deposit ratios have risen faster than at large banks.”

It also said By 4Q23, we expect Asia’s growth to be 500bps higher than DM growth – the strongest since 2017.

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