Morgan Stanley has revised India's FY27 GDP projection to 6.7% from 6.2% forecasted in April despite the ongoing concerns linked to ongoing West Asia crisis.

In April, it was that forecasted crude oil prices average $95 per barrel (bbl) in FY27 with gas availability  as an additional constraint. This crude oil forecast has now been revised downward to $87.5/bbl.

“In our base case, we expect global oil prices to peak in quarter ending June 2026 (QE Jun-26) and average $87.5/bbl in FY27. We forecast GDP growth of 6.7 per cent YoY in FY27 and 7 per cent in FY28, with the energy shock most pronounced in QE Jun-26, when growth troughs at 6.5 per cent YoY amid elevated commodity prices and lingering supply chain frictions," Morgan Stanley noted.

"Thereafter, as supply-side constraints ease and commodity prices moderate, we expect a gradual normalisation in activity, with growth converging to trend by March 2027,” penned Upasana Chachra, Chief India Economist at Morgan Stanley.

Meanwhile, Morgan Stanley has cautioned that sustained high oil prices could trigger non-linear and progressively larger impacts on growth, as the burden on households and firms.

Analysts noted that external demand is likely to remain uneven, and hinged on the duration of the ongoing West Asia crisis, and progress linked to the India–US trade agreement.

In a prolonged tension scenario, Morgan Stanley expects the first-round trade impact to materialise through sequential weakness in exports, driven by slower global growth and trade, compounded by higher freight and insurance costs.

“In our base case, global growth moderates to 3.2 per cent YoY in 2026 from 3.5 per cent in 2025, with US growth at 2.2 per cent and Europe at 0.6 per cent, both below prior estimates. Slower growth among major trading partners will weigh on external demand. We expect the impact to be more pronounced for goods exports, while services exports should continue to outperform and provide a partial offset,” the analysts noted.

Rural consumption

As per Morgan Stanley, rural consumption has exhibited resilience, and surpassed urban demand for eight consecutive quarters, aided by two seasons of above-normal monsoons and benign inflation, which have aided purchasing power.

“However, the IMD’s forecast of a weaker monsoon in 2026, driven by emerging El Niño conditions, and concerns around input availability (seeds, fertilisers) warrant close monitoring for potential impacts on agricultural yields and farm incomes,” Morgan Stanley said.

While growth risks remain tilted to the downside amid cyclical and external headwinds, the upside for the Indian economy could stem from faster-than-expected normalisation in global commodity prices, which would support profitability, sentiment, and a broader capex upcycle, Morgan Stanley said.