Morgan Stanley (MS) cuts India FY27 GDP growth forecast to 6.2% on Gulf conflict supply shocks

Key facts

• Morgan Stanley lowered India’s FY27 GDP growth forecast by 30 basis points to 6.2%.
• Crude oil price assumption raised to $95 per barrel amid Gulf conflict.
• Inflation projection revised upward to 5.1% from earlier 4%.
• Current account deficit (CAD) seen widening to 2.5% of GDP.
• Pharmaceuticals, paints, textiles and toys sectors face margin pressures from higher oil and gas costs.
• Textiles sector reports job losses due to limited pricing power.
• If oil spikes to $150 per barrel for a quarter, GDP growth could slow to 5.7%, inflation may exceed 6% and CAD could reach 3% of GDP.
• India imports over 85% of its crude oil requirements with about half sourced from the Gulf region transiting through the Strait of Hormuz.
• Oil and gas account for 80% of India’s total commodity trade balance, tracking at 3.5% of GDP.
• Reserve Bank of India (RBI) likely to hold policy rates steady at 5.25% initially, with non-rate tools such as managing oil marketing companies’ dollar demand, tightening outward direct investment flows and encouraging NRI deposits.