Morgan Stanley’s managing director and chief India equity strategist, Ridham Desai, while speaking at the Business Standard BFSI Summit explained how India’s rapid economic growth and reduced reliance on imported energy have lowered the impact of oil on the current account.
“Our oil dependency has gone down 60 per cent. Our economy has quadrupled since 2008, and our oil import bill has gone up 80 per cent during the period. It is no longer consequential to our fundamental account, which means we are not running such a large savings deficit,” Desai said while speaking at the Business Standard BFSI Summit.
Why is Desai bullish about Indian markets?
Desai, one of India’s most closely watched equity strategists, explained that his bullish stance on Indian markets is rooted in structural changes that have transformed the economy’s fundamentals over the past decade.
“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.”
Desai, 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.
The macro shift behind India’s resilience
According 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.”
