Goldman Sachs sees NSE Nifty hitting 9,500-mark by end-2015 on capital inflows

Goldman Sachs on Thursday said it is bullish on India and sees the National Stock Exchange (NSE) index Nifty hitting the 9,500-mark by end-2015 due to strong capital inflows in the country, which is expected to become fastest-growing large emerging market economy in the 2016-18 period.

"We stay overweight on cyclical recovery and reform progress and expect Nifty to reach 9,500 at end-2015," Goldman Sachs Chief Asia Pacific Regional Equity Strategist Timothy Moe told reporters in Mumbai.

We forecast a large balance of payments surplus in 2015 driven by a narrowing of the current account deficit and strong capital inflows. We forecast mid-teens earnings growth in 2015-16 largely driven by banks, IT and a few cyclical sectors, Moe said.

In a report, the US brokerage said it expects capital inflows to increase in 2015 due to stronger foreign direct investment (FDI) and resilient portfolio inflows in the country.

FDI flows are to be driven by improving medium term growth prospects, removal of restrictions of flows and (investment) commitments by Japan, the US and China over the past few months, Goldman said.

We estimate a balance of payments surplus of about US $50 billion in 2015, it said.

The headline consumer price (or CPI) inflation is likely to fall to 5.8 per cent in 2015 from 7.3 per cent in 2014, driven by lower commodity prices, providing some room for the Reserve Bank of India (RBI) to cut policy rates by 50 basis points (bps) in the first half of 2015, Goldman Sachs Chief India Economist Tushar Poddar said.

"We are also positive on the Indian rupee due to our expectation of a large balance of payment surplus, driven by somewhat narrower current account deficit as well as large FDI and portfolio inflows," Poddar said.

He added that expectation of an increase in investments in 2015 was based on easier financial conditions, government measures to remove red-tape and focus on boosting investment.

Goldman forecast the economy to expand by 6.3 per cent in 2015 and 6.8 per cent in 2016.

"Our forecasts imply India will become the fastest growing large emerging market economy over the 2016-18 period, overtaking China," the brokerage said.