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HSBC Global Asset Management expects the slew of reforms such as GST, more government spending on infrastructure, direct transfer of various subsidies and new solvency law should propel growth in long term and boost Sensex to 30,500 by end of December.
In the short term, the uncertainty over the impact of demonetisation and roll out of GST still remains but will not pose a huge disruption to growth prospects, it said.
Tushar Pradhan, Chief Investment Officer, HSBC Global Asset Management Company, said while inflation has been on downward trajectory, the lack of transmission in the interest rate and challenging asset quality issues in the banking sector has posed a challenge to economic growth.
However, he said, the government is correcting the structural problems in the economy and prepared to make far reaching changes to kick start the growth.
The fall in crude oil prices to an average $48 a barrel last year helped the government save about $61 billion last year and it will continue even as the oil prices tend to move up to $55-$60 a barrel this year, he said.
The demonetisation has put more money in the banking system and will help write off bad assets.
Comparing the government reforms with that of introduction of demat in stock market, Pradhan said the country will soon adopt the challenging yet beneficial path to reform and reap the harvest of good governance, buoyancy in tax revenue besides providing a conducive environment for business activity, far from fear of red tape and opaque regulations.
The roll out of GST has the potential to attract large part of informal sector into formal economy and have multiplier impact on GDP besides providing huge savings on transportation cost. While most agreed that demonetisation is targeted at so called "black economy" and propel cashless transactions, the gains have so far been illusory, he said.
On the global front, Pradhan said the low lending rates and huge infrastructure spending plans by new US President Donald Trump should result in sustained economic growth in the US and throw up more opportunities for the Indian IT sector, though concerns over growth in Europe and impact of Brexit remains.
Pradhan believes with the interest rates in India down, improving outlook for banking sector outlook and revival in external demand can pave way for sustainable rally in the Indian markets.
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