Domestic indicators point to nascent recovery: Deutsche Bank

Economic data like power generation, diesel consumption, tractor growth points to sharp improvement, says the financial services major

India is one of the best-placed among emerging market economies as domestic factors have started to turn "incrementally positive" indicating a nascent recovery, says a Deutsche Bank report.

According to the global financial services major, several economic data such as electricity generation, cement production, diesel consumption and tractor growth are showing a sharp improvement over 2015.

"Multiple domestic factors have started to turn incrementally positive, possibly making India one of the best-placed markets within emerging market universe once again," Deutsche Bank said in a research note.

The report talked about better macroeconomic data filtering down to on-the-ground activities, adding that "while it may be too early yet to predict if the economy has indeed turned 

around, the positive data points do appear to be encouraging and should be watched closely".

It noted that the country is witnessing nascent signs of a cyclical recovery across various economic activity indicators, barring the past three months' IIP growth and 4-wheeler sales growth, which is lower than the 2015 average.

"The strong likelihood of a good monsoon, a thaw in legislative inertia, improvement in several core economic indicators, end in WPI deflation, an incrementally better March quarter earnings point towards a domestic recovery," the global brokerage said while reiterating its Sensex target for this year-end at 29,000.

After two years of drought and crop failure, it is "critically imperative" for India to receive good monsoon rainfall in 2016. Most indicators thus far suggest a strong likelihood of above-normal monsoon.

On the Reserve Bank's monetary policy stand, the report said it does not expect a rate cut in the June 7 meeting.

"We do not expect a rate cut in this policy, but important from signaling perspective, particularly how RBI views improved expectations over monsoon and its assessment of impact on inflation," the report added.

Earlier in April, RBI reduced its policy rate by 0.25% to 6.5%. While this was the first rate cut after a gap of six months, RBI has lowered its rate by 1.5% cumulatively since January 2015.

However, the industry still wants further rate cuts from RBI to boost investment.