‘Bullish on India’: Morgan Stanley MD Ridham Desai says reforms driving equity gains; stability fuels confidence

Morgan Stanley MD Ridham Desai (File photo)

Morgan Stanley’s MD Ridham Desai, one of India’s most closely watched equity strategists, says his bullish stance on Indian markets is rooted in structural changes that have transformed the economy’s fundamentals over the past decade.Speaking at the Business Standard BFSI Summit, Desai — who has now been bullish on India for 11 straight years — said his optimism stems from the country’s declining external vulnerabilities, a shrinking current account deficit, and a macroeconomic framework that supports long-term equity growth.

“See, there’s a fundamental change that has happened in India, and it is not what people in this room are thinking,” Desai said. “The fundamental change has happened on our saving deficit, or what we call as current account deficit.”From “skating on thin ice” to steady groundDesai, however, acknowledged he hasn’t always been bullish.

“Yeah, I have been [bearish],” he said when asked if he’d ever turned negative on India.

“In January 2007, I had written a report called Skating on Thin Ice and had predicted that the Sensex would go down to 11,000.”At the time, the Sensex was around 15,000, and his call came amid what he described as “incessant appetite for IPOs”, stretched valuations, and peaking corporate margins.

“Profit share in GDP had hit a peak.

So margins were peaking out,” he recalled.

“The view was that earnings would slow down, that the IPO boom would cause a technical issue, and that valuations would give.”His timing, though early, proved directionally correct.

“It wasn’t until January 2008 that that played out,” he said, referring to the global financial crisis that eventually pulled the Sensex down to 11,000.He briefly turned cautious again in 2013 during India’s “taper tantrum” period but said that was a short-lived phase.“I have to say I’ve been bullish since 2014.

This is the 11th year of my bullishness,” he noted.Taking a long view on equitiesDesai cautioned investors against expecting quick gains in equities, emphasizing that patience is key.“Equities is the longest duration asset class in the world and you have to have a longer-term view,” he said.

“It’s not a fixed deposit.

It’s not a bond.

A minimum five-year view has to be had.

If you can’t afford a five-year view, you shouldn’t be less than three.

If you want to do equities for 12 months, good luck.”The macro shift behind India’s resilienceAccording to Desai, India’s current account deficit — the difference between national savings and investments — has undergone a quiet but fundamental correction.

“India has historically always had a higher investment rate compared to the saving rate,” he explained.

“Behind this was the fact that we had very little to sell to the world and had to import our energy requirements in very large quantities.”This persistent deficit, typically between 2.5 and 5 per cent of GDP, was once financed largely by capital market flows since foreign direct investment (FDI) was limited.However, over the past decade, the situation has shifted.

India’s oil dependency has dropped nearly 60 per cent, while services exports — led by global capability centres (GCCs) — have surged, reducing the external gap.Desai argues that this shift has made India’s macroeconomic environment far more resilient, enabling it to sustain lower interest rates and attract long-term capital without relying excessively on volatile portfolio inflows.“We are no longer as dependent on FPI flows because FDI has become more viable,” he said.

“This has completely altered India’s external dynamic.”‘Why India’s equity story is built to last’Desai concluded that India’s structural changes — in energy use, exports, and monetary management — have created a fundamentally stronger base for equity markets.“Historically, we had to run higher real rates for fear of our current account deficit widening.

Now we can run lower real rates,” he said.

“Which means interest rates in India will be lower than they have been historically.”For Desai, the takeaway is simple: the transformation of India’s macro framework, not short-term market momentum, underpins his conviction.

“These shifts have made India’s long-term equity story one of the strongest among emerging markets,” he said.

“If you have patience and perspective, India is where the opportunity lies.”