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Business Desk

The Statesman

Publication Date : 07-02-2013

Global investment banking firm Goldman Sachs believes the long-term potential growth rate of the Indian economy is 7 per cent and this could be notably higher provided the reform process gains momentum.

According to the research note, India is expected to clock 6.5 per cent real growth in 2013, which would rise to 7.2 per cent in 2014 and further to 7.5 per cent in 2016.

The country has been growing at an impressive rate of nine per cent before the global financial meltdown pulled the growth rate down to 6.7 per cent in financial year 2008-09.

Goldman Sachs lauded the recent reforms initiatives and said: “The key to unlocking India's potential growth has been, and remains in, the area of reforms.”

The investment banker today maintained “overweight” rating on Indian equity markets citing strong support from better earning growth, reform push and reviving global economy. These factors will have favourable influence on equity markets, says the latest report by Goldman Sachs.

The report says: “Indian markets have outperformed their Asian peers in 2012 by yielding more than 27 per cent returns on Nifty stocks.
This was mainly on account of strong foreign institutional investors’ inflow and the government's urgency to hasten reforms. Irrespective of global crisis and weak macro-economic conditions, portfolio flows into Indian equities remained mostly one way.”

For the current year 2013, Goldman Sachs expects an increase in earnings growth to 11 per cent which would drive equities further up.

“We peg the Nifty (of the National Stock Exchange) target at 7,000 points which represents over 16 per cent upside from the current level.”
The Nifty was ranked top performing broader index among all Asian benchmark indices.

Goldman Sachs further says: “The domestic economy picture apears to have bottomed and is inflecting upwards which should produce better earnings, growth, some valuation expansion and some currency strength.”

The recent reform initiatives, the Goldman Sachs report points out, have also reflected in the rupee-dollar exchange rates which has tilted in favour of the Indian unit.

On reform initiatives, Goldman Sachs says: “Many initiatives involve greater flexibility for foreign entrants, which have the benefits of driving more competition and better deals for consumers as well as creating opportunities for foreign direct investment (FDI) which would also fund the current account (now in significant deficit).”

With reports from PTI