India GDP to Grow 7.5% in 2018

Indian economy is expected to witness sharp recovery in the January-March quarter and its GDP growth likely to be around 7.5% for 2018, a report said.

According to Japanese financial services major Nomura's Composite Leading Index, some growth consolidation is likely in the Q4 (October-December), followed by a sharp recovery in Q1 (January-March) 2018 due to ongoing remonetization and improving global demand, PTI reported.

"We remain bullish on the growth outlook. We expect GDP growth to rise to 6.7% year-on-year in Q4 from 6.3% in Q3, followed by a stronger rebound to 7.5% in 2018," Nomura said in a research note.

The report further noted that a tightening of monetary policy is likely owing to inflationary pressures and higher oil prices. Moreover, the minutes of the December 6 monetary policy committee meeting suggest that even as most members saw upside risks to inflation, weak growth concerns have held them back.

"We expect slightly more hawkish rhetoric from the monetary policy committee in Q2 2018, when both growth and inflation are likely to be significantly higher, but we believe rates will be left unchanged through 2018 due to an ample real rate cushion," Nomura said.

The Reserve Bank in its fifth bi-monthly review of this fiscal kept repo rate unchanged at 6% and reverse repo at 5.75% while raising the inflation forecast for the remainder of 2017-18 to 4.3-4.7%.

  Bullish Sentiment

However, according to the Associated Chambers of Commerce of India, or Assocham, while the underlying bullish sentiment should continue to prevail in the Indian stock market in 2018, the returns on equity may not be as robust as in 2017.

This is because the 2017 bull-run has already factored in the return of growth steadiness in 2018 and the corporate earnings witnessing a pickup, it added. Weak base of corporate earnings in sync with the lowering of the gross domestic product growth in later part of 2017 would also help the revival in the year ahead.

As for pickup in investment, the scenario should turn positive only in the third and fourth quarter of 2018-19, till then the current capacity surplus has to be absorbed and debts reduced, Assocham said.

According to the chamber, the external sector should continue to do well, with merchandise exports further gaining on the back of smart recovery being witnessed in some important economies.

Weak base of corporate earnings in sync with the lowering of the gross domestic product growth in later part of 2017 would also help the revival in the year ahead.

"Despite pressure on IT and ITeS exports, the services exports too should remain robust and the overall current account balance would remain well within the manageable limits with rupee continuing to remain steady. The current account deficit may remain well below 2%," it said.

  Shares and Stocks

Improving outlook for economic expansion and stronger corporate earnings growth are expected to bolster asset allocation to Indian equities in 2018 and provide renewed thrust to the bull-run that has lifted benchmark indices to record highs.

Both the top-30 Sensex and the 50-share Nifty soared to their all-time peaks this week after Prime Minister Narendra Modi’s Bharatiya Janata Party posted a hard-fought victory in provincial elections in Gujarat, making it a sixth consecutive win for the ruling party in the western state.

For the markets the results eased any concerns about political uncertainty, and reaffirmed continuance of reforms underway.

“The spotlight will shift to the economy in quick time,” said equity strategist Manish Pandiya. “The next big event is the budget and it is a given the government will aim to pacify rural distress and boost jobs growth. It should be exciting times for equities.”

Companies have raised almost $30 billion through share sales this year, including record initial public offerings of $11.5 billion. A significant slice of the money was pocketed by angel investors, still the remaining cash is no small measure and would be ploughed into productive investments and higher earnings in the coming year.

Fund managers aver the biggest theme that will be the key driver for stocks in the coming years is discretionary spending, synonymous to latent demand in the emerging economy.