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IMF Predicts Strong GDP Growth for India: Stocks in Focus


The International Monetary Fund (IMF), has predicted economic growth for India, restoring its confidence in the country’s potential. The IMF foresees a 7.3% growth rate for India in the current year and 7.4% in 2019.

This compares favorably with the GDP growth rate of 6.7% clocked by the country in 2017. IMF acknowledged the nation’s GST and Bankruptcy Code.

Structural Reforms a Positive

Reform initiatives such as demonetization as well as implementation of the national Goods and Services Tax, the Insolvency and Bankruptcy Code, and steps to liberalize foreign investment among others taken by India’s prime minister Narendra Modi have been applauded by global economists. These reforms should make India’s economy more transparent, making it easier to invest in and carry out business in India.

One of the major moves, the implementation of the Goods and Services Tax, has removed layers of taxation by putting into effect the national sales tax. This has increased the government’s tax revenues, increased business’s competitiveness reduced cost of production of goods among the other benefits.

Moreover, the Insolvency and Bankruptcy Code was passed in 2016 to consolidate all the existing laws related to insolvency in India by creating a single law for the same. This was aimed at improving the ease of doing business in India, and facilitate a better and faster debt recovery mechanism in the country.

Rupee Weakening, Rise in Oil Price Not a Real Worry

The monetary policy tightening in the United States has weakened the rupee, as investors pull out funds to invest in the U.S. markets. Moreover, a rise in oil prices will widen the country’s trade deficit further, since India imports a major portion of its oil requirement and pays for it in dollars. Nevertheless, a sliding rupee boosts exports, which should ease the pressure on trade imbalances.

India’s growth story remains strong driven by solid growth in manufacturing and consumer spending. The country’s PMI has stayed above the 50 mark since July 2017, signaling growth. Its service sector, which was 51.5 in August, also remains strong.

JP Morgan's chief Jamie Dimon is bullish about India and said last month that the country is an educated nation at peace, with strong companies and political leadership, growing population, and constant reforms. Though he accepted that a depreciating rupee has posed a challenge to the country’s oil import bill, he also pointed out that "India could do fine if rates go up in the U.S."

Stocks to Watch

The strong growth of India’s economy should favor the following stocks.
ICICI Bank IBN is a leading private sector bank in India. The recent banking crisis in India, which saw massive exposure of state banks to bad loans, opens up growth opportunities for private banks like this one. ICICI Bank, with a strong balance sheet, is less exposed to stressed sectors, has strong governance and is more competitive. The bank could benefit from the struggles of the country's state lenders by taking away their market share. The stock carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Dr. Reddy’s Laboratories Limited RDY, an Indian pharmaceutical major, has its eyes on the United States, with an aim to launch 15 products annually to double its marketed products to 170 in the coming years. Management is looking to expand in the United States from retail to hospitals, renal clinics and other unexplored channels. The company wants to be one of the top 10 drugmakers by sales in India from the current position of 16. The stock carries a Zacks Rank #3.

Tata Motors Limited TTM, India’s largest automobile company, is witnessing robust demand for its Commercial and Passenger Vehicles Businesses in the domestic market. Strong economic activity, growth in manufacturing, agriculture, construction and private final consumption expenditure, affordable housing, irrigation projects, and government spending on infrastructure projects should keep up demand for its products. The stock carries a Zacks Rank #3.

Wipro Limited WIT, India’s third-largest software services provider, on its most-recent earnings call forecast a higher-than-expected growth. An improving demand environment, has led to a pickup in spending in the developed markets, particularly in North America and Banking, Financial Services & Insurance Solutions . Investments in digitization and strong order booking bode well for the company’s growth. The stock carries a Zacks Rank #3.

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