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Indian economy likely to grow 6-7% in 2012: Bank Sarasin

Last Updated: Thursday, January 19, 2012 - 15:04

Dubai: The Indian economy is likely to grow between 6-7 percent in 2012, says a report by Switzerland-based Bank Sarasin.
     
"Sarasin expects the Indian economy to slow until mid-2012 and subsequently pick up in the second half of the year. The growth rate in 2012 is likely to be between 6 percent and 7 percent," it said.
     
It added that this cautious outlook is supported by "the timely indicators at the end of 2011: industrial production is decreasing sharply and purchasing indicators have dropped substantially in the last twelve months."
     
Inflation in India proved extremely stubborn in 2011. As a consequence, the RBI can relax monetary policy only gradually, with the result that the downturn in India will be stronger than in the rest of Asia, it said.
     
India, like the other emerging markets in Asia, is seeing a global economic cooling at the start of 2012, it said, adding that while countries like China can respond to weaker export demand with a sharp reduction in key interest rates, the Reserve Bank of India (RBI) will find macroeconomic management more difficult.
     
"However, the central bank's difficulties in combating the downturn might also provide a catalyst for the country's long-overdue structural reforms.
     
"India's infrastructure, especially in the industry and the agricultural sector, lags the strong increase in aggregate economic demand and represents a serious bottleneck for the country's growth," it said.
     
According to the report, India will have more problems in stabilising the economy and returning it to a growth path than neighbouring China.
     
While yields in the other Asian emerging market countries retreated in 2011, yields on 10-year Indian government bonds rose. Sticky inflation and the attendant powerful rise in key interest rates have weighed on bonds. But as the economy cools further, the first interest rate cuts during the year are likely to give the Indian government bonds significant upside potential this year.
     
However, the report expressed optimisim with regards to the prospects of Indian equity market.
     
"If the RBI stabilises economic performance without losing sight of inflation, we predict a soft landing scenario from an economic and structural standpoint in twelve-month's time.
     
"Given the historically attractive valuation of the Indian equity market we are optimistic about its prospects in the 2012 investment year and expect it to produce a return of 20-30 percent," it said.

PTI

First Published: Thursday, January 19, 2012 - 15:04
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