Bet On India Mutual Funds Following Strong Growth Projections

India’s growth story has gone from strength to strength in 2015. A slew of reform measures implemented by the new government elected last year have led to renewed optimism about the economy. As a result, ratings firms and global agencies have provided strong growth projections for this year, making investments in India an increasingly lucrative proposition.    

Moody’s Provides Strong Growth Projections

Last week, Moody’s Analytics projected higher growth for the Indian economy in 2015 compared to 2014. The research arm of the global rating agency Moody’s said the country’s economy would grow by 7.5% this year compared to 7.2% in 2014. According to Moody’s Analytics, first quarter GDP growth will decline to 7.3%. However, this is only a temporary dip as the agency foresees an improvement in domestic demand which will lead to higher growth for the year as a whole. 

Incidentally, in early April Moody’s upgraded India’s rating outlook from “stable” to “positive”, while it maintained the Baa3 rating. The rating agency indicated that India can receive a higher rating if efforts to boost growth materialize going forward.

IMF Believes India Lone BRIC Star

Meanwhile, IMF points to slowing growth in emerging economies as a whole. China’s economic expansion has fallen to a six-year low. Russia and Brazil have been flirting with recession and somehow managed to stay afloat at the end of 2014. This scenario leaves India as the lone star in the BRIC space.

The IMF now expects India’s economy to grow at a 7.5% rate in 2015, up 1.2 percentage points from its January forecast. India was the only BRIC nation to have received an upgrade from IMF this time as the forecast for China was unchanged while Russia and Brazil are forecast to slip into recession.

Rate Cut and Reform Measures

Such an outlook for the economy is also a result of monetary and policy level initiatives. Citing slowing inflation, the Reserve Bank of India (RBI) surprised the global market by opting for two rate cuts this year within two months, which in turn will bolster growth. The Indian inflation target is currently pegged at below 6% by January 2016 and at the midpoint of 2–6% by April 2018.

Any divergence from the inflation target range for the three successive quarters would hint at the failure of central bank policies. This was quite an achievement for India, known for a cycle of rate hikes in the past one-and-half years to rein in soaring inflation.