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No Modi bias, Goldman bullish on India's growth
After the rap over endorsement of Narendra Modi earlier this month by its equity markets arm, Goldman Sachs on Thursday refused to attribute anything political to its optimism on the country's growth prospects next fiscal, saying it does not form or hold political opinions on the topic.
"Our view on the economy does not have any political colour to it. Our 5.5 per cent GDP forecast for next fiscal is based on the slight uptick in capital investment and the normal post-election pick-up in growth," Goldman Sachs India chief economist Tushar Poddar said during a conference call.
Poddar was answering a question on whether the 5.5 per cent growth estimate has any so-called Modi effect.
Earlier this month, the US bank, in a report titled 'Modi-fying our View: Raise India to Marketweight,' upgraded its outlook for Indian equities, saying the market rally is based on bullish sentiment on Modi, the BJP's prime ministerial candidate, coming to power in the next general election.
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No Modi bias, Goldman bullish on India's growth
Central ministers responded by asking Goldman to do the job that it is good at and not to make political comments.
Poddar denied any political bias in the GDP forecast and stuck to his 4.3 per cent estimate for the current financial year, saying growth in the second half will be tepid.
Finance Minister P Chidambaram has said he is confident the economy will pick up in the second half and record a growth of 5-5.5 per cent in 2013-14.
"We are expecting an improvement in capital investment to 3.5 per cent next fiscal from 1.3 per cent this fiscal," Poddar said. "Another enabling factor will be the external sector, which will drive exports.
"The external sector enablers include the solid growth in the US, much lower fiscal trap across the major economies, US tapering happening by March but still Fed rates remaining at record lows up to 2015 and a stable China, which together will help maintain the country's export momentum," Poddar said.
On the parliamentary elections, he said they are a major area of uncertainty, with a potentially large impact on policy reforms and investor/corporate sentiment in either a positive or negative direction.
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No Modi bias, Goldman bullish on India's growth
Factors that could boost growth include pent-up investment demand in infrastructure and other sectors, Poddar said.
"Downside risks include greater-than-expected policy rate hikes due to persistent inflation and/or inflationary expectations, or a further tightening in external funding conditions," he said.
India's economic growth slowed to a decade-low of 5 per cent in 2012-13. Wholesale price inflation rose to an eight-month high of 7 per cent in October, while retail inflation was at a seven-month high of 10.09 per cent.
Despite a modest pick-up in investment spending, which led Goldman to upgrade its forecast slightly over the coming year, Poddar said he expects growth to remain below trend in 2014.
Commodity prices, led by tepid oil at $105 a barrel in 2014 and $100 in 2015 will also help the country, he added.
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No Modi bias, Goldman bullish on India's growth
Poddar pegged the current account deficit in the current financial year at under 3 per cent, at 2.7 per cent next fiscal and at 2.6 per cent in FY16.
He said the tight monetary policy will continue into the next financial year. Poddar projected the repo rate would be raised to 8.5 per cent next year from 7.75 per cent currently to curb inflation. He estimates WPI inflation at 6 per cent in FY15 and retail inflation to slide to 8.3 per cent.
"The Reserve Bank, under new Governor Raghuram Rajan, is trying to balance growth and inflation concerns. We expect the repo rate to move to 8.5 per cent by end Q2 of 2014, slightly above the forwards, but then to fall on disinflation in 2015 and beyond," Poddar said.