BNP Paribas expects India to grow the fastest among major world economies


According to BNP Paribas India Strategy Report, India is expected to be the fastest growing economy among major economies like US, UK, Japan, Germany, France, China, Italy and Spain. The report summarizes the discussions held during the 2022 India Equity Roundtable hosted by BNP Paribas in September 2022.

The report also notes that the inflation problem in India is much smaller compared to developed countries, mainly due to the composition of the CPI (Consumer Price Index) where the dependence on food inflation is higher. BNP Paribas believes that commodity costs have cooled and this should reduce the trade deficit. According to the report, “Recession fears provide a weaker backdrop for global risk assets and the global outlook remains unusually uncertain.” BNP Paribas expects the magnitude of the Fed’s tightening to double to $95 billion from September 2022, which should hamper overall market liquidity.

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On the rupee front, a large current account deficit along with potential FPI outflows are expected to likely sustain the Indian currency’s depreciation bias.

Turning to the outlook for corporate earnings, the report puts the consensus estimate for headline earnings growth at 15.6% yoy for FY24, with a large portion of the contribution coming from financials (5.4%) and consumer discretionary (2.7%). ) originates. ) and IT (2.1%). The sectors with the smallest contributions are likely to be utilities, health care and industrials. So, according to the report, what’s ahead? The bond yield is 7.2%, ahead of the earnings yield of 5.2% — suggesting the relative attractiveness of bonds over equities. “Historically, market returns have remained subdued at these levels over the next year, urging caution.” The report notes that India’s valuation premium versus its Asian peers remains near all-time highs. BNP Paribas remains cautious on near-term overall market returns given slowing global demand, elevated market valuations, a slowdown in retail flows and the lack of a positive catalyst for its earnings estimates.

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