Five themes market should watch out for

Bank of America Merrill Lynch in its India Equity Strategy report came up with the economic factors that might change the course of the markets

The strong political mandate in the latest round of elections is likely to result in changes to the economic factors that will set markets' direction in the days to come. Bank of America Merrill Lynch in its India Equity Strategy report identified five evolving themes in its September 29 report authored by research analysts Jyotivardhan Jaipuria and Anand Kumar.

Edited Excerpts:

1.Urban income should grow faster than rural income

People in cities will find their income rising at a faster pace than their counterparts in rural areas. Faster growth and lower interest rates are expected to have a higher impact on urban India. Rural incomes will also continue to grow, albeit slower than before.

2.INR depreciation should give way to stable currency

Improved current account deficit and the central bank's moves to recoup reserves are likely to result in more stability for the rupee.

3.From rising interest rates to falling interest rates

The Reserve Bank of India is likely to cut rates on the back of lower inflation and current account deficit, after raising interest rates by 300 basis points(3 per cent) in the last five years.

4.From earnings downgrades to earnings upgrades

Earnings are expected to double over a four-year period. Better margins on account of higher operating leverage signals more earnings upgrades ahead.

5.Investment spend to drive GDP

Higher investment from both the government as well as private players is likely to result in higher investment spending over the next 24 months.

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