Leading brokerage Credit Suisse has said the economy will grow faster than anticipated as it is entering a "sweet spot" with both inflation and the twin deficits likely to throw up surprises on the upside this year.
The brokerage also pegged 2013-14 growth at 6.9% and at 7.5% for FY'15. It also has one of the highest GDP forecasts for the current fiscal at 5.7%.
"We expect GDP growth to surprise on the upside and inflation on the downside in 2013. The latter should in turn prompt the RBI to cut policy rates more than generally anticipated, while even the twin deficits could narrow somewhat. India is entering a cyclical sweet spot and the FY14 budget is going to be tighter than generally anticipated," Credit Suisse research analyst Robert Prior-Wandesforde said in a note.
If at all the RBI goes for more-than-expected rate cuts through 2013, it does not see growth clipping beyond 7.5% in FY'14, he added.
The brokerage said headline inflation readings will fall significantly to 6% while core inflation will fall steeply to under 4% by mid-2013.
The optimism is based primarily on the recent 4 point improvement in the manufacturing PMI (Purchasing Managers Index) and a marginal rise in the services PMI in November.
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"It seems that the fundamentals are beginning to become more helpful. In our view, the economy has yet to feel the full benefits of the rupee's sizable depreciation, while the drop in market interest rates, the prospect of further policy rate cuts and the likely confidence-boosting effects of the reforms," he said,
Prior-Wandesforde sounded less optimistic on China saying those expecting a strong, sustained recovery of the Chinese economy are likely to be disappointed as new regulations on shadow banking, the trust sector and local government funding will constrain public sector investment.
Even the private sector is likely to continue to struggle.