Nomura is cautious on Asia (weak growth amid high inflation) and expects MSCI Asia ex-Japan to end 2017 slightly below current levels, at 520. But the Japanese broking firm has raised India to top overweight due to strong earnings growth expectations in 2017 (best in Asia) and Indian equity markets’ relatively attractive valuation.

“India saw one of the better earnings revisions in the region this year, and growth expectations for 2017 remain strong. On the other hand, the relative performance of Indian equities has been on a downtrend since August. This has brought the market’s relative valuation (vs MSCI Asia ex-Japan) to its lowest since January 2014 (before the elections),” Nomura said in a note.

However, key risks to the Indian equity markets would be the impact of slight widening in the current account deficit on the currency and Uttar Pradesh elections (around May 2017).

Following a dip in gross domestic product growth post-demonetisation, Sonal Varma, chief India economist, Nomura, expects growth to pick up through 2017. “India continues to be the best growth and reform story in the region. We expect 2017 to be a consolidation year of stable growth and inflation, prudent macro policies and more reforms, setting the stage for a rise in potential growth. We expect growth to be largely unchanged at 7.1 per cent in 2017, but to rise sharply to 7.7 per cent in 2018,” she said.

Varma is happy with the reforms, such as implementation of Goods and Services Tax and demonetisation (though it will hurt in the short run) under the Modi government and expects much more to come in future.

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