RAIL STOCKS

2014: Predictions for rupee, inflation


It is that time of the year when stock market analysts churn out predictions for 2014. Goldman Sachs, a US-based global investment bank, predicts a faster economic growth for India next year but expects challenges in terms of inflation and high interest rates.
 
Here are five expectations of the bank on India in 2014:
 
1. Better Growth:  Goldman Sachs predicts India’s economy to grow at 5.5% in 2014-15 due to high exports and increase in investment demand. India’s economy represented by the GDP is expected to grow at 4.3% in 2013-14. GDP is calculated by tallying all the expenses and investments in the country, be it at the individual, organisational or government levels. It represents the total value of all the goods and services produced in the quarter. It is reported in two ways – at current and constant prices.

2. Lower inflation: The consumer inflation represented by CPI index is forecast at 8.3% (9.7% forecast for 2013-14) and wholesale prices are expected to rise at 6.3% in 2014-15 (6.5% in the year ago period) due to rising administered prices and an elevated inflation expectation. WPI is measured by calculating the increase in wholesale prices of goods. This is generally lower than retail or market prices. CPI is also called retail inflation as it measures any rise in the prices at which goods are bought by the end consumer.

3. High interest rates:  Goldman Sachs expects the Reserve Bank of India to continue to hike rates due to persistent inflation. “We see the repo rate moving up to 8.5% by mid-2014, as the central bank moves to targeting the CPI,” the investment bank predicts. For the year 2013-14, the repo rate is lower at 7.75%. RBI decides the lending rates as part of its ‘monetary policy review’. It does so by setting the repo rate – the rate at which RBI lends to commercial banks. No loan rate can fall below the benchmark repo rate.

4. Lower current account deficit: Goldman Sachs predicts the current account deficit to remain under 3% of GDP in FY14-FY16, close to sustainable levels, driven by better exports alongside weaker oil and gold imports. India is battled a wide current account deficit (CAD)– the amount it owes to the world. Trade deficit is a major part of the current account deficit. A wide CAD puts pressure on the rupee and fuels inflation.

5. Rupee to fall: Goldman Sachs predicts the rupee to continue to depreciate gradually due to higher inflation than trade partners, the improvement in the current account and balance of payments may limit the magnitude of depreciation. The bank predicts the rupee to hover around Rs 65 to US dollar in 2014-15. The rupee has been making headlines the past few months after it dropped to its lifetime-low of 68-to-a-dollar levels.

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