Credit Suisse predicts 10% growth

The Emerging Markets Economics Research sees acceleration in India's growth, reports HT Correspondent.

india Updated: Feb 17, 2007 09:56 IST

The Credit Suisse Emerging Markets Economics Research predicts acceleration in India’s GDP growth to 10 per cent in fiscal year 2007-08 and 10.5 per cent in FY 2008-09. This goes against the consensus forecast, which indicated a slowdown from the current year’s estimated growth of 9.2 per cent to 7.8 per cent next year.

“We are optimistic on the outlook for investment spending, resulting in our above consensus GDP growth forecasts,” the report stated. Credit Suisse finds power generation, cement, capital goods and construction equipment and services sectors attractive.

WPI inflation may be close to peak, said the report and expected it to moderate around March 2007. Despite strong GDP growth forecast, it expected inflation to moderate in the next 12-24 months at around 4.5 to 5 per cent year on year.

The key factors behind their bullishness are that capacity additions by Indian corporate are likely to be robust, public investment spending in power and highways sectors are gathering pace, economic activity is moving to developing regions and replacement capital spending needs are gaining significance. “At macro level we believe there may be adequate funds to support strong investment spending over the next few years,” the report said.

However, it is conservative on its estimate on the net portfolio inflows in the coming years. To quote from the report, ‘We expect portfolio flows to remain resilient at $6 bn (0.7% of GDP) in FY06/07, $8 bn (0.9% of GDP) in FY07/08, and $11.7 bn (1.1% of GDP) in FY08/09 on the back of strong GDP growth’. This is against the last year’s portfolio inflow of $12.5 bn.

The report pointed out that downsides risks to its aggressive GDP growth forecast may come from factors like: Slow down in project implementation in the power and highway sectors by the government, oil price momentum and if liquidity conditions tighten significantly at the global level, the pace of capital inflows may be lower than what is anticipated.

First Published: Feb 16, 2007 20:30 IST