Foreign brokers bullish on India

Foreign brokerage houses have revised upwards India’s FY16 GDP growth forecast as they believe that the structural reforms to be undertaken by the new government would help India to accelerate its economic growth.

Morgan Stanley has raised its FY16 GDP growth forecast to 6.8 per cent from its earlier projection of 6.2 per cent. On the other hand Goldman Sachs believes that India’s GDP growth would accelerate to 6.5 per cent in FY16.

While India’s structural story has been very strong, analysts at Morgan Stanley pointed out that the pace of reforms, which has been slow in recent years was holding back its growth. According to them reforms that could follow post elections will improve business sentiment, thereby lifting corporate sector profitability and incentivising a revival in private investment.

“We now feel more confident that India will emerge from the stagflation type of environment over the next few quarters. While in our base case forecasts we had assumed an outcome of a stable political government the actual outcome has been stronger than expected. Reflecting this optimism, we now expect India’s GDP growth to accelerate from 4.7 per cent in the quarter ended March 2014 to 6.8 per cent in QE Mar- 16 compared to our previous estimate of 6.2 per cent,” analysts at Morgan Stanley said.

Economists at Goldman Sachs believes that India’s GDP growth has bottomed out in first quarter of 2014 and expects it to gradually increase from 4.6 per cent in FY14 to 5.5 per cent in FY15, and then pick up meaningfully to 6.5 per cent in FY16.

“The growth pick- up is largely driven by an improvement in external demand, as well as a gradual pick- up in investment activity. Our above- consensus FY16 GDP growth forecast also factors in potentially significant structural reforms by the new government,” Goldman Sachs said in a note to its clients.

DBS in its research note maintains GDP for 2014- 15 at 5.5 per cent “as banking and corporate sector are under pressure and there is little monetary or fiscal room to buoy growth.”