NEW DELHI, India - A new report has emphasized how the Indian economy is on the cusp of entering its strongest growth phase.
The report by Edelweiss Investment Research has pointed out that the economy is entering the strong phase of growth when stocks, bonds and commodities all rally together.
It believes that a full blown market is yet to play out with the wide-based Nifty expected to touch 11,500 in 2018.
The wide-based index, Nifty that breached the 10,000 mark for the first time on July 25 is currently hovering around 9,700 level.
Edelweiss Investment Research said in a note, "We believe that India is at the cusp of entering this phase and a full blown bull market is yet to play out.”
The Research pointed out that consumption and exports are boosting economic growth in the country.
It said that while consumption has displayed sharp recovery after the cash crunch in early 2017, investments are witnessing only a government supported recovery which is inadequate but effective for a few sectors like railways, roads and power transmission and distribution (T&D).
Commenting on the uptick in equities, the report noted that stock markets are driven by low inflation, profitability and increase in financial savings.
It said that although Nifty valuations are "rich", a continued shift in the allocation of funds from debt to equity is likely to continue.
Further explaining, “A comparison of Nifty's earning yield versus the 10-year government bond yield shows that equities are still attractive as compared to debt instruments and we should expect shift in the allocation of funds from debt to equity to continue.”
The report said that trade, which is a key driver for India's growth engine is synchronous with global growth and is likely to boost international trade as well as Indian exports.
The report said, “Export growth is held up despite facing pressure from a strong rupee. We expect exports to remain healthy with global industrial activity reviving.”
Meanwhile, consumption, which had slowed post demonetization is slowly picking up in India as reflected in 2-wheeler and passenger vehicle sales and this, in turn, is likely to lead to a revival in investments.
It said, “We believe that India's strong consumption story will drive in investment as witnessed from 2003-08 and earlier episodes.”