India is poised to benefit from a broad-based revival in the global industrial cycle, with improving exports, rising capacity utilisation and a strong pipeline of capital expenditure likely to support growth over the coming quarters, according to Chetan Ahya, from Morgan Stanley.

Speaking to ET Now, Ahya said recent data points suggest that the industrial cycle has turned not just in Asia, but across major developed economies as well.

“So, we have seen a turn in the region’s industrial cycle, but it is also not just the region. We have seen that turn in the US industrial production, European industrial production. So, we think that this is a sort of global industrial cycle revival and something similar is happening in India data as well,” he said.

India’s own industrial production has begun to show signs of improvement, and Ahya believes the recovery has further room to run. A key driver, he noted, will be the revival in non-tech exports, which had been under pressure over the past year due to tariff-related issues.

“What we have seen in the last 12 months in the region is that tech exports have continued to do well, but non-tech has suffered because of the tariff situation. But now that the tariff situation is behind us even for India, and at the same time we are seeing that the US recovery is going to broaden out from tech to non-tech, that will help global trade and that will help Asia’s exports,” Ahya explained.

Beyond exports, he highlighted three major structural trends that are expected to reinforce the industrial upcycle. These include rising investment in AI-related infrastructure, increased defence spending across the region, and accelerating capital expenditure linked to energy transition.
“Number one, you are seeing everybody having to invest for AI-related infrastructure. We are seeing everybody in the region, for example, spending more on defence. So, Korea, Taiwan, Japan and then as you saw in India’s budget as well, the government has increased defence spending allocation by 18%, that will also fuel the industrial cycle,” he said.He added that energy transition will require substantial investment in supporting infrastructure, particularly power grids.

“If you are investing more in solar, the old grid system will not work, so you have to invest in the grid system. So, there is an additional ancillary capex that is emerging. So, yes, a combination of a number of factors we think is bringing this revival of industrial cycle.”

Benign Inflation, No Rate Hike Expected in 2026
On the inflation and monetary policy outlook, Ahya said that while improving growth and exports will lift capacity utilisation, inflation is unlikely to become a concern in the near term.

“Inflation is still not going to be a concern anytime soon because the starting point of inflation is still very low. And if you think about the labour market as one source of potential inflation pickup, the labour market starting point is also that there is a significant amount of slack,” he said.

As a result, he does not expect the Reserve Bank of India to raise rates in the current calendar year.

“So, we do not have a rate hike in calendar year 2026. We have it only in 2027. So, yes, next few quarters we should have a benign environment where growth is strong and inflation is still just heading towards normal levels rather than getting to a point which forces the RBI to think about rate hikes.”

Virtuous Cycle for India’s Capex and Industrial Output
Ahya reiterated that India stands to benefit from the same tailwinds driving Asia’s recovery, particularly as exports pick up and corporate capital expenditure responds.

“If India’s exports pick up, we have always seen that that has an implication for corporate capex in the region as well as in India. So, it will trigger an additional improvement in capex which in turn drives industrial production. So, there is going to be a virtuous cycle that unfolds for India too,” he said.

He added that investments in AI infrastructure, defence and energy transition will further strengthen this cycle for the Indian economy.

India Well-Placed Amid Potential Upside in US Growth
With expectations of stronger US growth, Ahya said Asia — including India — could see additional support, even though India is less export-dependent than some of its regional peers.

“India is definitely less dependent on exports than the rest of the region, but it is a part of the driver for India’s economy too,” he said.

At the same time, he pointed out that India’s current positioning among global investors creates a potentially attractive setup over a 12-month horizon.

“Foreign investors’ positioning in India is at a 25-year low. The long-only investors’ position in India is at a 25-year low. Hedge fund investor positioning in India is at a 15-year low. And amongst the emerging markets, they are maximum underweight on India,” Ahya noted.

Given the weak recent earnings and revenue growth, he believes any turn in fundamentals could offer a differentiated opportunity for India.

“We think actually on a 12-month forward basis, India offers a unique opportunity where investors are sitting very bearish and we see a turn in fundamentals in terms of the corporate revenue growth and normal GDP growth.”