India's GDP Growth Drivers Shift as Global Brokerages Flag Economic Changes
Morgan Stanley and Nomura have analyzed India's economic outlook following 7.4% GDP growth projections for FY26, identifying significant shifts in growth drivers. While Morgan Stanley expects growth to exceed government estimates citing strong indicators since September 2025, both firms anticipate consumption slowdown in H2 FY26 with capital expenditure becoming dominant. Nomura highlights nominal GDP deceleration to 8.00% due to weaker deflator but forecasts 7.1% growth for FY27 supported by policy easing and stable global conditions.
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Global brokerage firms Morgan Stanley and Nomura have issued comprehensive analyses of India's economic outlook following the release of First Advance Estimates that project 7.4% real GDP growth for fiscal 2026. While both firms maintain cautiously optimistic views on the country's fiscal health, they have identified significant shifts in the economy's fundamental drivers that warrant attention.
Morgan Stanley's Bullish Yet Nuanced Outlook
Morgan Stanley has maintained a bullish stance on the Indian economy, predicting that actual growth could ultimately exceed the government's 7.4% projection. The firm has pointed to high-frequency indicators since September 2025 as evidence of the economy's underlying strength, suggesting robust momentum in key economic metrics.
| Parameter | Morgan Stanley View |
|---|---|
| Expected Growth | Above 7.4% government projection |
| H2 FY26 Consumption | Expected to slow |
| Dominant Theme | Capital expenditure |
| Government H2 Estimate | Conservative at 6.9% |
The brokerage has noted that consumption growth may slow during the second half of FY26, with capital expenditure set to become the more dominant economic theme. Morgan Stanley views the government's estimate—which implies a dip to 6.9% growth in the second half—as conservative, believing that policy impetus will sustain investment cycles even as consumer demand softens.
Nomura's Broader Fiscal Assessment
Nomura has offered a broader fiscal picture, highlighting a sharp deceleration in nominal GDP growth to roughly 8.00%—a trend driven by a weaker GDP deflator. The brokerage considers this development 'neutral' ahead of the upcoming Union Budget but warns it confirms a clear moderation led by softer consumption patterns.
| Metric | Nomura Analysis |
|---|---|
| Nominal GDP Growth | ~8.00% (sharp deceleration) |
| Primary Driver | Weaker GDP deflator |
| Budget Impact | Neutral |
| FY27 Growth Forecast | 7.1% |
For FY27, Nomura remains positive on India's growth trajectory, forecasting 7.1% growth. The firm has cited several key catalysts supporting this outlook:
- Lagged policy easing effects
- Low inflation environment
- Stable global growth conditions
- Potential easing of US trade tensions providing tailwinds for Indian exports
Convergent Views on Economic Transition
Both Morgan Stanley and Nomura are effectively expecting consumption-led growth in the Indian economy to slow down during the second half of FY26. This represents a significant shift in India's economic composition, with investment and capital expenditure likely to play increasingly important roles in sustaining growth momentum.
The brokerages' analyses suggest that while India's headline growth figures remain robust, the underlying economic dynamics are evolving. The transition from consumption-driven expansion to investment-led growth could have important implications for various sectors and policy approaches as the economy navigates this structural shift.
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