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Indian Stocks in Focus as IMF Appreciates Its Economic Growth

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The government of India recently received a shot in the arm with the International Momentary Fund (IMF) applauding the country’s economic growth. The IMF stated “Indian economy is a like an elephant that is starting to run as the country remains one of the fastest growing economies in the world”.

IMF Raises India’s GDP Projections

According to the IMF, Indian economy is gaining momentum as a result of several policy reforms taken by Prime Minister Narendra Modi’s administration in the last four years. Consequently, the IMF has raised the country’s GDP growth rate to 7.3% for fiscal 2018-2019 (India’s fiscal year starts in April and ends on March of the next year) from 6.7% in fiscal 2017-2018.

Further, the agency projected 7.5% GDP growth rate for fiscal 2019-2020. Moreover, the IMF expects India's GDP growth to rise to 7.75% over the medium term.

Economic Reforms Pay-Off

On Nov 8, 2016, Modi announced that the government of India has decided to demonetize its high-value currency notes. This was one of the boldest steps taken by any Indian Prime Minister ever in a bid to clean up the financial sector from notorious parallel economy, the main hindrance to India’s economic growth, security and prosperity.

On Aug 8, 2016, Indian parliament adopted a nationwide goods-and-services tax, or GST. The step blended a variety of state and central levies into a national sales tax, resulting in a solo customs union for India’s 1.3 billion people. The move has made business transactions seamless and lowered cost of production of goods. In addition, the government of India plans to boost infrastructure and open up industries such as railways and defense to foreign investment.

Momentum Likely to Continue

On November 2017, India, for the first time secured a place in the top 100 of the World Bank’s Ease of Doing Business (EDB) global rankings. According to the World Bank’s Global Economic Prospects in January 2018, Indian economy is likely to grow at 7.3% in 2018.

In February 2018, Moody’s Investors Service projected India’s GDP growth rate at 7.6% for 2018 and 7.5% for 2019. In November 2017, the rating agency upgraded India’s sovereign bond rating for the first time in nearly 14 years.

Moody’s was optimistic about structural reforms undertaken by the Modi administration is likely to boost growth and reduce the debt burden. Moody’s lifted India’s rating to Baa2 from Baa3 and changed its rating outlook to stable from positive as “risks to its credit profile were broadly balanced”.

Indian Stocks in Focus

India is likely to become the fifth largest economy in the world in 2018. The country has a massive population of which 70% are below the age of 35 and are extremely tech savvy. Improving current account deficit, a recovery in private investment, introduction of the GST, and a stable monetary policy are major positives for the economy.

At this stage, Indian stocks which are listed in the U.S. stock exchanges are likely to benefit most. Dr. Reddy's Laboratories Ltd. (RDY - Free Report) , Infosys Ltd. (INFY - Free Report) , ICICI Bank Ltd. (IBN - Free Report) and HDFC Bank Ltd. (HDB - Free Report) are likely to gain. Dr. Reddy's Laboratories, Infosys and ICICI Bank carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The chart below shws price performance of four above mentioned stocks in the last three months.


 

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