Anecdotal evidence suggests nascent signs of a pickup in corporate capex, reflecting new investment announcements made recently, with approval for three semiconductor chip manufacturing plants entailing an investment of $15 billon and the new approved EV policy that could trigger investments in electric vehicles, the brokerage said.

“In this context, we expect the momentum in capex to pick up in a sustained manner, creating a virtuous cycle of growth,” it added.

India’s GDP has continued to surprise on the upside for four consecutive quarters, suggesting inherent strength in the economy, as a result of which growth has galloped above expectations, global brokerage, Morgan Stanley said.

F22-24 growth is likely to average at 8.2 per cent year-on-year buttressed by sustained growth momentum in industrial and capex activity.

Capex has led the recovery cycle. This cycle, like the 2003-07 one, has been marked by a pickup in capex, Morgan Stanley said.

Capex growth has averaged 8.5 per cent since June 2022, with growth at a double-digit level of 10.6 per cent in the December 2023 quarter versus the pre-pandemic (2017-19) average of 7.3 per cent.

On policy rates, Morgan Stanley now expects no easing in the forecast horizon.

This is driven by change in the US Fed rate path and domestically strong growth, both warranting higher neutral real rates.

“We believe that improving productivity growth, rising investment rate, and inflation tracking above the target of 4 per cent, alongside a higher terminal Fed funds rate, warrant higher real rates,” the brokerage said.