India to recover in second half of 2009-10: Goldman Sachs

The Indian economy will recover from the slowdown in the second half of 2009-10, thanks to the strong domestic market and improving financial sector, investment bank Goldman Sachs said on Monday.

"We expect a recovery in activity in the second half of fiscal 2009-10, led by a pick-up in domestic demand amidst the loosening financial conditions," Tushar Poddar, an economist with Goldman Sachs, said on Monday.

"The positive surprise coming from domestic activity data, excess liquidity in the system, a substantial easing of financial conditions, declines in some key interest rate spreads, and the removal of election uncertainty suggest that activity will pick up in the second half," he added.

According to him, the positive cues were reflected in the stock markets.

"Markets seem to be driven by both domestic and global factors. The Sensex increased 21 percent month over month, outperforming the S&P by 8 per cent," Poddar said.

Foreign institutional investment (FII) rose to $1.8 billion in April after falling $1.2 billion in March and the rupee appreciated 2.3 per cent against the dollar, he said.

According to Poddar, the key risk is "the formation of an unstable coalition and the ratcheting up of long bond yields due to greater borrowing by the government to finance the post-election budget".