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Five reasons why you should cheer for the Indian economy

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Bank of America Merrill Lynch has come out with a report that suggests the Indian economy may be turning around. Crucial data points - scheduled for this week - will act as litmus tests for the economy, the investment bank says.
Here are the top five optimistic scenarios
  1. Industrial growth bottoming out: Bank of America Merrill Lynch expects the Index of Industrial Production (IIP) to jump to 5 per cent in October, after contracting 0.4 per cent last month on Diwali effects. The pickup in growth in core industries- that have a 37.8 per cent weightage on IIP- from 0.4 per cent in October to 6.5 per cent in November and uptick in the HSBC Markit manufacturing PMI - from 52.9 last month to 53.7 in November - point to higher industrial growth.
  2. QE III unlikely to fuel "imported" inflation: BofA-ML argues that Quantitative Easing (QE) III - expected on December 12 - will not prove as inflationary for India as QEI and QEII. After all, agro markets - like edible oils, raw cotton and sugar - in which Indian and global prices are integrated, are now reasonably comfortable, BofA-ML adds. However, oil prices may be a risk.
  3. Inflation may have peaked off: BofA-ML expects November inflation at 7.5 per cent – same as October, which means that inflation would top off at 7.5-8 per cent by December to 7-7.5 per cent levels in the first half of 2013. It also expects the Reserve Bank to cut the Cash Reserve Ratio (CRR) by 25 basis points (0.25 per cent) on December 18 to pull down lending rates to support growth.
  4. Reforms legislation: V. Narayanasamy, minister of state in the Prime Minister’s Office, has told the media that the government will push for banking and companies law amendments, raising FDI in insurance and introducing it in pension schemes, BofA-Ml says. In case of insurance, media reports suggest that it may introduce an additional FII investment window of 23 per cent of equity instead of hiking the FDI cap to 49 per cent from 26 per cent to develop a political consensus.
  5. Rupee may rally on reforms: BofA-ML strategists see the INR at Rs53 per USD in March 2013 with the US Dollar rising to 1.23 per euro.


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