Merrill Lynch Bullish On India

Merrill Lynch is rooting for India.

In a report titled 'Ten reasons we like India,' the New York-based firm is pushing the Indian equity market as one of the best emerging markets bets over a one-year period.

The 10 reasons are renewed confidence in the Indian equity market, undervalued equities, lower interest rates, the possibility of agriculture-led growth, increased focus on infrastructure building, static M3, the coalition government's gift for survival, the stable rupee, positive technical outlook, and the fact that India offers a safe haven for fund managers burnt elsewhere in the region. Arguing that Indian share prices will continue to outperform other markets in the region, Merrill Lynch's global research department says the country's equities are still 'inexpensive.'

At the same time, the brokerage giant believes that there is a growing sense of optimism in the Indian equity market, and that real GDP growth will be better than 6 per cent this fiscal year. 'We find the 30-35 per cent local currency-based rally in equities since April to be convincing evidence that confidence is on the upswing,' the report says.

Merrill Lynch is also basing its forecast on the belief that the Reserve Bank of India will continue with a relaxed policy, and that inflation and money aggregates argue against any back-up in interest rates in the near future.

The New York-based firm is predicting that the run-down in interest rates will lead to an increase in investment spending, exceeding the levels seen in 1994.

The rupee, the firm points out, has been remarkably stable. 'If anything, the risk here is for upward pressure on the rupee because of strong capital inflows. Yet that may actually provoke trade liberalisation and fiscal reform while keeping interest rates low,' says the report.

Meanwhile, Merrill Lynch is also betting heavily on a healthy growth rate fuelled by a good monsoon. Noting that agricultural output is nearly 26 per cent of India's GDP, the report points out that favourable agricultural conditions always create an increased rural demand for goods and services.