Bank recap to lift GDP to 8% next fiscal: Report

The NSE Nifty is estimated to hit 11,600 points by December 2018 with earnings growth expected to be the key propellant: Goldman Sachs

The Indian economy is likely to clip at eight per cent in the next financial year as the massive bank recapitalisation will help revive long-stalled credit demand and private investments, according to report. India’s Rs 2.11-trillion bank recapitalisation plan, announced by government in October, and a likely recovery in earnings, are also likely to drive up the stock markets, said a report by Goldman Sachs, which now expects the National Stock Exchange (NSE) Nifty index to hit 11,600 points by December 2018, reports PTI. "We project above-consensus real GDP growth of eight per cent in 2018-19, while we see a growth of 6.4 per cent for 2017-18, as the negative impact from shocks (demonetisation and the GST implementation) this year fade and the bank recap programme unlocks credit and private investment growth," the brokerage said on Monday. It said India’s CPI inflation would likely rise above the mid-point of RBI target to 5.3 per cent in FY19 due to a pick-up in food and commodity prices, and therefore expects the central bank to hike policy rates by 75 basis points by mid-2019. Keeping a "overweight" view on the stock markets, Goldman Sachs’ Chief Asia Pacific regional equity strategist Timothy Moe told reporters that the "Nifty is estimated to hit 11,600 by December 2018 from the current levels with earnings growth to be the key propellant". He also said the market is likely to generate 18 per cent returns in 2018 helped by the recently announced bank reforms. However, he cautioned that any delay in earnings growth can pose downside risks to this outlook. Economic activity could pick up in first half of 2018, said the report, "as the drag from the idiosyncratic shocks of demonetisation and GST implementation fade". "Four months into GST, our channel checks suggest that there are still some headwinds to activity due to uncertainties around the new tax system and an increased compliance burden," it added. However, it further noted that its discussions with retailers, wholesalers and manufacturers show that recent government announcements to ease the compliance burden and reduced tax rates for nearly 200 products can boost activity over the next three to six months. On the impact of the bank fund infusion, the report said it expects positive effects from the public sector bank recapitalisation to flow through the economy form the second-half of 2018. "The bank recapitaliation can break the vicious cycle between higher non-performing loans, weaker bank balance sheets and slower credit growth that has inhibited the acceleration in the growth cycle over the past few years," the report said, adding this can also lower borrowing costs further due to competition.