Investors in Asian equities should look to any temporary post-election dip in Sensex to add to their India exposure, a research note put out by J.P.Morgan Asset Management has said.

Strongly recommending a significant structural overweight (on India/Sensex), this J.P.Morgan note said that it was unlikely that all the positives had been priced into the stock market.

For now, a cyclical rebound in economic growth to 7 per cent by 2015-16 and CPI inflation easing gradually to 6 per cent look achievable, the note has said.

“Beyond a near-term cyclical rebound, we also envisage a brighter medium term outlook for the Indian economy that could start to become visible by 2016”.

One possible point of contention between Prime Minister Narendra Modi and the Reserve Bank of India (RBI) could be that to meet the 6 per cent CPI inflation target as recommended by Urjit Patel committee, some further rate hikes would be required.

This would hardly be popular as many in India believe that the RBI has finished raising rates, according to the J.P.Morgan report.

But Modi is also well aware that if the inflation expectations dragon is not overcome now, then any subsequent boost to aggregate demand from BJP policies could easily end in tears and more monetary tightening.

So perhaps, it is in the Government’s own interests if inflation can be beaten down to a much less threatening level in the RBI’s current tightening cycle, said the report.

Also, the report has highlighted that fiscal discipline could be a dampener on growth in the near term—the fiscal position inherited from the outgoing administration is likely to prove less healthy than the official UPA numbers suggest.

Srivats.kr@thehindu.co.in

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