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Mar 24, 2012, 12.51 PM IST | Source: CNBC-TV18

Here's what prompted Goldman Sachs India upgrade

CNBC-TV18’s Harish Rao reports that better growth possibilities, negative global impact and fall in crude prices prompted Goldman Sachs to upgrade its rating for India.

Harish Rao, Reporter, CNBC-TV18

Goldman Sachs upgraded its outlook on India from ‘underweight’ to ‘neutral’. One of the reasons for the change in outlook was due to Goldman Sachs’ forecast that the Indian market will begin reflecting better growth possibilities in the second half of the year, report CNBC-TV18’s Harish Rao and Kritika Saxena.

Other positive factors indicated by the brokerage include the negative impact of the volatile global environment on the Indian economy and the fall in crude prices, evidenced by a drop in inflation and rising industrial production indices.

Goldman also points out the dissipation of uncertainty regarding the elections in Uttar Pradesh and the Union Budget. The brokerage believes growth in the India market should rise to 7.2% in 2102 from 6.9% in 2011 and predicts growth to rise to 7.8% in 2013.

It also expects slowing core inflation to allow RBI to cut the repo rate by 150 basis points in 2012-13.

However, the risks are aplenty. The most significant risk is oil prices. High crude oil prices may have to be passed on to the consumer. This will mean higher inflation and a lower possibility of rate-cuts.

Goldman also points out that foreign funds have pumped in USD 8.6 billion so far this year. This has offset selling by domestic investors so far. But if the rupee should weaken, dollar inflows could take a hit.

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