Goldman Sachs' rosy India forecasts make investors cheerful

Sensex rose to a 19-month high of 19,170.91 making stock investors richer by Rs 80,000 crore in a single day.

New Delhi: Global financial major Goldman Sachs Thursday came out with a positive outlook for India saying the economy is likely to grow by 6.5 percent in 2013 within days of Moody's giving a stable outlook on the country's sovereign rating.

This cheered investors sending the BSE Sensex to a 19-month high of 19,170.91 making them richer by Rs 80,000 crore in a single day.

The country's GDP is likely to grow by 6.5 percent in 2013 driven by favourable external demand outlook and domestic structural reforms push, a Goldman Sachs report said today.

According to a research note by the investment banking major, growth is likely to pick up gradually to 6.5 percent in 2013 and further to 7.2 percent in 2014.

This is on the back of "easing financial conditions, in part driven by some reduction in policy rates, a continuation of reforms boosting confidence, and a normal agricultural crop," Goldman Sachs said.

India had been growing around 8-9 percent before the global financial meltdown of 2008. The growth rate in 2011-12 slipped to a nine-year low of 6.5 percent and in the first quarter ended June 30, the economy grew by 5.5 percent.

The second quarter GDP numbers will be released tomorrow. On November 24, Finance Minister P Chidambaram in Pune had indicated that growth of the economy may have slowed to 5.5 percent in July-September quarter of the current fiscal from 6.9 percent in the year-ago period.

The US-based financial major also said India's S&P CNX Nifty Index may climb about 14 percent by the end of next year and upgrading its recommendation on the Indian stocks to 'overweight' from 'market-weight'.

The 50-share Nifty could rise to 6,600 by December 2013, Goldman Sachs said. "For India, the upside drivers include a recovery in growth, a decline in inflation, and the potential for continued policy reforms," Goldman Sachs said. There was no year-end target mentioned for BSE Sensex.

Tracking a steep rise in local stocks, the rupee sharply appreciated by 61 paise, its biggest gain in two months, to end at 54.84 helped by capital inflows worth nearly USD 300 million and sustained dollar sales.

By predicting that Nifty will rise around 14 percent by December 2013, Goldman Sachs joins Morgan Stanley and JPMorgan Chase & Co in forecasting a positive outlook for Indian stocks.

The BSE Sensex may reach 23,069 by December 2013, Morgan Stanley analysts said in a November 26 report. Earlier, JPMorgan had said that Indian stocks are its best bets among BRIC nations next year.

On the economic side, ratings agency Moody's on November 27 had said India's credit outlook is stable but cautioned that high fiscal deficit and persistent inflationary pressure would continue to pose challenge for the economy.

The rating agency said that the 'Baa3' sovereign rating is supported by credit strengths which include a large, diverse economy, strong GDP growth as well as savings, and investment rates.

The positive outlook fuelled a 305-point rise in Sensex that day to a two-month high of 18,842.

"The rating is constrained by the credit challenges posed by India's poor social and physical infrastructure, high government deficit and debt ratios, recurrent inflationary pressures and an uncertain operating environment," Moody's had said in its 'Credit Analysis on India'.