The Hindu Business Line : `Marginal impact likely from US slowdown'

GDP outlook
The report forecasts India's GDP to reach 8.5 per cent in 2006 while that in 2007 would witness a mild deceleration at 7.5 to 8 per cent.

Mumbai , Dec. 14

The economic slowdown in the US is expected to dampen India's growth momentum marginally. India will continue to be crucial for the Asia region's growth, says an Asia-Pacific Markets Outlook put out by Standard & Poor's.

The report forecasts India's GDP to reach 8.5 per cent in 2006 while that in 2007 would witness a mild deceleration at 7.5 to 8 per cent.

"The wheels are still firmly on the Asia-Pacific market juggernaut, but they will not be spinning quite so dizzily in 2007. Although the trend is still broadly positive for the year ahead, there will be some negative credit stories too," said Mr Ian Thompson, Chief Criteria Officer, Standard and Poor's.

While the growth trajectory of the economy is expected to continue, India's public finance is particularly vulnerable to any secular decline in growth rates and increase in interest rates, the report said. According to the report, the overall credit quality of the Indian corporate sector is likely to remain sound in 2007. "Indian corporates may face pressure from higher debt for funding capacity expansions, weakening of operating margins and rising interest rates. But improvements in their financial profiles from strong sales growth and cash flows in the past two to three years will mitigate these adverse trends and lend stability to their credit profiles," said Mr Anshukant Taneja, Director and Team Leader - Corporate Ratings, Standard & Poor's.

The Market Outlook report picks consumer credit as the prime driver of credit expansion - growing in excess of 40 per cent each year - and now constituting more than a quarter of the entire system's credit portfolio. Over 50 per cent of consumer credit is from inherently less-risky housing loans, the report stated.

Going by the report, the macro-economic view of India remains favourable for stock markets in 2007. Strong GDP growth and stable interest rates augur well for stable profit margins and a market EPS growth of about 17 per cent.

Areas of concern

"However, there are some areas of concern in rising input costs, particularly for the services companies, and extended valuation of stocks. If global investors reduce their holdings in Indian equities, the Indian rupee could come under pressure and exacerbate selling in the stock market. Upside potential would come from a continued re-rating of the market backed by strengthened economic fundamentals, a continued trend of increasing investment in manufacturing and infrastructure; and rising momentum for technology share prices," said Mr Vincent C.Y.Ng, Associate Director, Equity Research - Standard & Poor's.