India under Narendra Modi may be the best emerging market turnaround story: Nomura

Japanese brokerage Nomura has said India may become the biggest turnaround story among emerging markets (EM) in five years, given the decisive mandate received by the pro-growth Narendra Modi government and the Reserve Bank of India's (RBI) actions.

"The landslide election victory by Prime Minister Narendra Modi, combined with Governor Raghuram Rajan at the helm of RBI, is a potential game changer for India," the brokerage said. It is not an exaggeration to expect India to stand out as the biggest EM turnaround story in the next five years, Nomura added.

"The Reserve Bank's fight against inflation will continue hand in hand with the proactive, business-orientated Modi government's strong mandate to cut red tape and jump-start supply-side reforms," it said in a note.

The real investment growth will go up to 10 per cent if such policies are implemented, which will push up the potential growth rate of economy to over 7 per cent, it said.

If the investment growth picks up by 15 per cent, the potential growth rate, which has fallen during the two fiscals of sub-5 per cent GDP growth, will increase to 8 per cent, the brokerage said.

Other strengths of the country include nearly half the population under 25 years old of which 70 per cent is yet to urbanise, creaking infrastructure which is estimating to need $1 trillion till 2017, it said.

Nomura added that there are a lot of synergies between India and Japan, and stressed on the need for both the countries to work together. "Perhaps serendipitously, much of what India needs, Japan can offer," it said.

Japanese companies engaged in engineering and construction can help pull of massive infrastructure projects like the Delhi-Mumbai Industrial Corridor, the note said.

Other avenues of cooperation include high-speed railway networks, roads, power generation and renewable energy, it said, adding that Japanese Prime Minister Shinzo Abe is targeting to triple infrastructure-system exports to Japanese Yen 30 trillion by 2020.

India accounts for only 1.2 per cent of Japan's total FDI and 1 per cent of its total trade, Nomura said, noting that Japan and India signed a Comprehensive Economic Partnership Agreement (CEPA) which went into force in 2011.