India will turn 2nd biggest Bric in bloc

■ Bank of America says India offers relative value to a slow- growing global GDP

India offers relative value in a slow growth world as it is growing faster than most emerging market peers and is expected to clock a GDP growth of 7.4 per cent this fiscal, a Bank of America Merill Lynch ( BoAML) report says. This faster growth is allowing the country to emerge as the second largest emerging market after China.

“India still offers relative value in a slow- growth world. In our view, we see a shallow recovery at home, we estimate growth at 5.5 per cent in FY16 and 6.5 per cent in FY17 ( old GDP series),” BofA- ML said even as it marginally cut the growth forecast to 7.4 per cent in FY16, from its earlier estimate of 7.5 per cent. In 2015 India grew 7.3 per cent

The brokerage firm’s research report further argues that lending rate cuts hold the key to cyclical recovery.

In its opinion, the reforms, meanwhile, will show the impact in the medium term. “Reforms remain important, but more from a medium 5- 10 year perspective. For example, the 1991 reforms led to a structural break only in 2001. We expect the RBI to cut another 25 basis points in February after it meets its under- six per cent January 2016 inflation mandate.”

The recovery in consumption, the brokerage claimed, would be the next trigger.

“We expect recovery to come from a pick- up in consumption of one per cent of GDP rather than an upturn in the capex cycle. This will be driven by four factors namely: softer lending rates; public sector salary hikes of 0.30.5 per cent of GDP due to the Seventh Pay Commission award, and higher household savings of 0.4 per cent of GDP due to falling oil prices; and a possible increase in wheat MSP to implement the Swaminathan formula before Punjab and UP polls in the early 2017.

The three event risks highlighted by the report are Fed interest hike, lower earnings and the Bihar polls results on November 8.