Strong economic growth and and domestically-funded fiscal deficit are likely keep the country's debt position stable even if the financial crisis in Europe worsens, a Citigroup report said Thursday.
"Although India, with a fiscal deficit forecast at 8.5 per cent in 2010, may seem vulnerable to any worsening of the European fiscal crisis, its strong growth trajectory should
ensure that its debt dynamics remain stable, while its deficit is primarily domestically-funded," the report said.
Eurozone nations like Greece, Spain and Portugal are facing financial crisis because of heavy borrowings by their governments, leading to erosion in investor confidence across the world.
There has been widespread belief that the European crisis could affect other parts of the world, especially those countries which have high deficits, mainly on account of international borrowings.
Citi's first Global Emerging Markets Strategy Report, covering 22 nations, puts India in "neutral" category along with China, Chile, Mexico and South Africa. Listing its top picks, the report says, "our "overweight" calls are Taiwan, South Korea, Russia, Brazil, Turkey, Thailand; we are "neutral" in China, India, Chile, Mexico and South Africa."
It projects India's economic growth at 8.5 per cent during 2010 and estimates the overall size of the Indian economy (GDP) at USD 1.67 trillion.
It estimates that the country's inflation would be 8.4 per cent during the year, and lead to tightening of policy rates by the Reserve Bank. "India scores well on earnings and GDP growth... However, rising inflationary pressures may force a more rapid tightening of policy," the Citi report said.
As for China, it cautioned about a property bubble and said the government's efforts to bring the prices down would cut Chinese GDP growth by 3 percentage points in a full year.
For Asia as a whole, the report says the region is its favourite and assigns it in the "overweight" category.However, it cautions: "Asia is at risk from slower export growth to
Europe, if the crisis intensifies, and the effects on growth of a property collapse in China."
For the overall forecast for the emerging markets, which constitute 29.6 per cent of the global GDP at USD17.8 trillion, the report said, "our forecast is for around 15 per cent returns in emerging equity markets in 2010, with a continuing pattern of volatility within a rising trend."
It said its long-term positive/bullish outlook on the emerging markets is based on the fact that the global economy is in the early stages of a new upswing and an anticipation of
strong corporate earnings growth.