Credit Suisse has lowered India's growth forecast for the current fiscal to 5.7 per cent, but said the economy has bottomed and will see a moderate recovery during 2013.
"We have made a small further downward adjustment to our 2012-13 GDP growth forecast to 5.7 per cent from 5.9 per cent, while opting to leave our 2013-14 forecast at 6.9 per cent," Credit Suisse said in a research note, adding that growth is likely to average an above-trend 7.5 per cent in 2014-15.
The three main reasons behind the cautious optimism about Indian economy include, firstly, weaker rupee which will boost net exports, secondly, the government's reforms will provide a quick boost to business confidence, and thirdly, the previous rate rises should support investment and durables consumption.
"Meanwhile, we believe the drop in market interest rates, the diminishing lagged effects of higher policy rates, the weaker rupee and the confidence-boosting effects of the government's reforms mean economic growth has bottomed," Credit Suisse Research Analyst Robert Prior-Wandesforde said.
A lot however depends on how effectively measures such as the opening up of the multi-brand retail sector (and others, including broadcasting, power exchanges and domestic airlines) to foreign investment are implemented, Credit Suisse said.
Moreover, the moderate recovery in the economy also depends on to what extent Finance Minister P Chidambaram is able to credibly meet his ambitious medium-term fiscal consolidation plans, it added.
In October, Chidambaram had suggested a fiscal deficit of 5.3 per cent of GDP in 2012-13 was "doable", followed by 4.8 per cent in 2013-14 and further gradual reductions to 3 per cent by 2016-17.
Meanwhile, HSBC has cut India's growth forecast for this fiscal to 5.2 per cent from 5.7 per cent, while rating agency Fitch warned this week of a downgrade in India's sovereign rating in the next 12-24 months citing slowing GDP growth and weak public finances.
In April and June last year, another rating agency S&P, had warned of further downgrades, which would put India into a junk status from the current lowest investment grade rating of BBB-.
In the first half of FY13, the GDP clipped at a poor 5.4 per cent, and the government expects to close the fiscal year under 5.7 per cent.