After Goldman, Nomura now sees Modi wave

Nomura expects a BJP-led coalition to form the next government at the Centre after the 2014 elections

After Goldman Sachs, another foreign brokerage said it expected Narendra Modi-led Bharatiya Janata Party (BJP) to come to power after the Lok Sabha elections.

"Nomura expects a BJP-led coalition to form the next government at the Centre," political analyst at the Japanese brokerage, Alastair Newton, said in a note dated November 26.

However, Newton tempered his forecast saying "a stable government, regardless of whether it is led by the BJP or Congress, should support a gradual business cycle recovery."

Nomura India Chief Economist Sonal Verma said, "Once political stability has been established, we believe past investment projects cleared by the Cabinet Committee of Investment could be implemented. This revival will be led by a de-bottlenecking of existing investment projects."

Goldman had said the recent market rally was driven by the Modi effect and had pegged the Sensex target for December at 23,000. The Goldman statement attracted criticism from a number of Union ministers who asked it to stick to what its good at and keep off from meddling in political matters. Despite this, ex-Goldman official Jim O'Neill was quoted repeating the Modi theme for the market by a business channel.

Verma of Nomura said political stability and policy credibility are paramount to corporates making long-term investment decisions. This will help the economy witness a gradual recovery after Q3 of 2014. "We expect GDP to accelerate to 5.7 per cent in 2015 from 4.8 per cent in 2014. Our growth recovery forecast is more gradual than the country's past cycles due to the leveraged balance sheets of corporates, higher bad loans and higher interest rates," Verma said.

Verma went on to add that politics is the key downside risk domestically, saying a Third Front government or a fractured mandate in the hustings will further slow the reform momentum and lower potential growth. She also said the RBI will hike interest rates by 25 bps twice in the first half of 2014 citing still high inflation pressures. "With growth bottoming out and but inflation likely to remain stubbornly high, we expect another 0.50 per cent cumulative repo rate hikes by mid-2014," Nomura said. She said the stubbornly elevated inflation, food- related supply shocks and the recent upswing in rural wages, will require rates to remain higher for longer. "We expect CPI inflation to average 9.3 per cent in 2014, remaining above 9 per cent for the sixth consecutive year. Accordingly, we expect the Reserve Bank to hike the repo rate by a cumulative 50 bps to 8.25 per cent  by mid-2014," it said. Nomura believes economic growth is near its trough but domestic demand remains very weak due to a lacklustre capex cycle amid political uncertainty, falling income growth and higher interest rates. Citing rising exports and rural demand which are boosting growth, it said growth has bottomed out, but the recovery will be very gradual and GDP may marginally tick up to 4.8 per cent in 2014 from 4.7 per cent in 2013. "We expect a stronger pick-up in 2015, with GDP growth rising to 5.7 per cent." Overall, she said, "Nomura sees 2014 as a year of two halves: a cautious outlook in H1-due to weak growth, inflation concerns, political uncertainty ahead of elections and risk of capital outflows-but a more optimistic outlook in H2 on the back of policy stability following the polls and a growth revival."

In its plea, CBI had stated Ambani was responsible for incorporation of shell companies such as Swan Telecom, Tiger Traders, Zebra Consultants, Parrot Consultants  and Giraffe Consultancy “and their interlocking equity structures”.

Ambani, however, is learnt to have denied the allegation that Swan Telecom was a Reliance Group company.