While the growth prospects for the economy are likely to remain weaker than currently expected, visibility on various macroeconomic parameters should improve during 2018, expects Credit Suisse. Neelkanth Mishra, India equity strategist at Credit Suisse, in an interview with ET Now said, “Structural reforms have weakened visibility on most macroeconomic parameters. We have long considered India as being a ‘house under renovation’: structural reforms such as the Goods and Services Tax (GST), the Insolvency and Bankruptcy Code (IBC) and the setting up of Real Estate Regulators (RERA) in states, while structurally positive, have introduced significant uncertainty around growth, fiscal deficits, inflation, interest rates and banking system health.” A wait of nearly six to eight months is necessary to gain some clarity on the fiscal scenario and the tax collection trajectory of goods and services tax (GST), said Neelkanth Mishra.
He also stated that the concurrent economic indicators appear dim at present and broad-based demand is not in sight as yet. “Structural reforms in indirect taxation, insolvency resolution, and real estate, while structurally positive, have disrupted business processes and supply chains, and the windscreen is foggy when looking at the near-term growth outlook, fiscal health, interest rates, inflation and the currency. Furthermore, with Consumer Price Index (CPI) inflation staying below 4% for 12 consecutive months for the first time in nearly four decades as a result of weak food prices, agricultural income growth has stalled, “ he added.
Credit Suisse anticipates that the global growth remains tepid compared to last decade before the financial crisis in 2008. However, for the first time this decade, growth forecasts as well as earnings estimates have stabilized and are no longer being revised downwards. Credit Suisse favours energy and metals, PSU banks and IT sectors. “We are more comfortable owning stocks that are likely to benefit from steady global growth, and in particular beneficiaries of the withdrawal of China from export markets in polluting industries. We are therefore overweight on energy and metals. Together with the likely write-back of provisions in steel non-performing assets (NPAs), we also believe the recapitalization should benefit the stronger PSU banks, and help drive a re-rating, even if only for 2-3 years,” said Credit Suisse.