Goldman ups 2010 GDP to 7.8%

Goldman ups 2010 GDP to 7.8%

“We are raising our fiscal year 2011 Gross Domestic Product growth forecast significantly to 7.8 per cent from 6.6 per cent due to a much improved investment outlook, espcially for infrastructure, a recovery in consumption demand, and a better external environment,” Goldman Sachs said in a note.

It also attributed this to several Indian companies raising capital through Qualified Institutional Placements (QIPs).

Besides, revival in capex plans in power, roads, energy and materials among other sectors due to credit availability has brightened prospects.
“A low base in agriculture from fiscal year 2010 also contributes to our above consensus growth expectations,” it added.

Growth expectations
However, growth expectations for the current fiscal remained unchanged at 5.8 per cent as “a poor monsoon and its negative impact on rural demand in the near term, takes away the upside from a large loosening of financial conditions,” the investment bank said.

It pegged India’s inflation target for end of fiscal year 2010 at 6.5 per cent, with risks firmly to the upside.

Inflation declined further to
(-)1.58 per cent for the week ended July 25 from (-)1.54 per cent in the previous week. The RBI, in its July 28 policy review, said inflation is likely to firm up to 5 per cent by March 2010.

“We think inflationary pressures are building up. Food prices are rising, and we think will continue to rise due to the prospect of a significantly poor summer crop. Our end-March 2010 target for WPI inflation is at 6.5 per cent,” Goldman Sachs said. It also expected the RBI to tighten policy rates by 3 per cent in calender year 2010—significantly above the consensus which currently is expecting about 2 per cent of tightening.
“We think that the RBI will have to tighten by 3 per ent by end-2010 merely to bring monetary policy back to neutral,” the note said.

Repo rate or the rate at which banks borrow from RBI is currently 4.75 per cent.
The rate at which RBI borrows from banks (reverse repo) is at 3.25 per cent.