 "BNP sees India growing at 8% on normal monsoon")
French bank BNP Paribas sees India's economic growth to increase on good monsoon, concurring with Finance Minister Arun Jaitley that the country could grow at 8-8.5 per cent from the projected 7-7.5 per cent if the monsoon turns out good as predicted by the weather office.
"We are very much in that camp," said Richard Iley, BNP Paribas' chief economist for emerging markets, in a media interaction on Thursday.
Of course, for this to happen, oil prices have to remain benign and the US Federal Reserve should not raise interest rates this year. BNP does not see the US Fed raising rates this year. According to Iley, a good monsoon can lift agriculture growth in the country, which then can translate into at least a rise of 50-60 basis points in gross domestic product (GDP). Rural demand and agriculture has remained subdued due to two consecutive bad monsoon spells.
According to BNP Paribas, the Indian economy is on a recovery path. The government, boosted by excise duty collections on falling crude oil prices, have invested heavily in the infrastructure space and this capital expenditure is expected to lift the economic prospect of the country in the coming months. The private sector is still shying away from investing as the capacity utilisation is only about 70 per cent. But the private sector is expected to increase their expenditure, particularly to take advantage of a rural demand once the rainfall normalises.
But certain sectors like cement and electricity production have already started showing a pick-up and this will broadbase in the coming days, Illey said. Foreign direct investment (FDI) is expected to improve to $50 billion in calendar year 2017, from $40 billion now and the target of $100 billion before the end of the term of the present government is not a very tough to meet, BNP Paribas said.
Illey said the Reserve Bank of India (RBI) had room to cut rates one more time as inflation is expected to fall significantly. Prices of pulses hold the key for a low inflation number.
"Fall in pulses prices is setting stage for significant disinflation. By the end of this year, we can see deflation in pulses prices," Illey said, adding, "When you think about prospects of RBI rate cuts, think about pulses." India is currently in a goldilocks zone, where the economy is picking up even as rates are expected to fall further. This is rare, he said. BNP sees the rupee trading in a range of 66-69 a dollar by the end of this year.
The French bank has set a year-end Sensex target of 29,000, which implies over 10 per cent upside from current levels. Manishi Raychaudhuri, Asia equity strategist, BNP Paribas, said the brokerage is "overweight" on India and China in the Asia (excluding Japan) region. BNP Paribas' overweight stance on India, however, has come down a few notches since March. India's valuations premium to MSCI Asia ex-Japan is above the long-term averages, Raychaudhuri said.
