The impact of demonetisation will only be short-term and India’s growth momentum is likely to get back on recovery path from April next year with support from consumption and exports, says a Morgan Stanley report. According to the global financial services firm, the currency replacement programme is a roadblock in the short term and GDP growth for the quarters ending December and March is expected to slow down by around 50-75 bps.
The broad growth outlook of the country however, remains unchanged, it said. “We maintain our overall constructive outlook on India. We expect growth to be back on the recovery track from 2Q17 after a short period of slowdown between November 2016 and March 2017, due to the currency replacement program,” Morgan Stanley said in a research note. The report expects consumption, which accounts for 60 per cent of GDP, to recover from the quarter ending June’17, and the recovery to broaden following the pick-up in public capex and FDI flows.
Moreover, as global growth is expected to accelerate to 3.4 per cent in 2017 from 3 per cent in 2016, following which India's exports is likely to support an overall recovery in 2017 after being a drag in 2016, the report noted. On equity markets, the report said that the country will exit the low return environment of the past two years, thanks to better equity valuations. “In our view, equities are likely to deliver 14 per cent INR returns in 2017, compared with (-) 3 per cent in 2015 and 2016,” Morgan Stanley said.