"India has surprised in 2014 -- inflation is down more than 500 bps, the rupee has outperformed peers by 4-5 percent, the equity market is up 35 percent, bond returns around 13-14 percent and a very buoyant mood.
"We think 2015 could see more surprises due to the ongoing process of macro stabilisation...this could lead to a ratings upgrade," Citigroup India Chief Economist Rohini Malkani said in a year-end report.
The US brokerage also pegged higher growth in the coming years with 5.6 percent this fiscal, 6.5 next one and 7 percent from FY17 onwards.
Admitting that Asia's third largest economy could face some tailwinds in the New Year, she however said the positives outdo the negatives as India is in for more surprises.
"We have got tailwinds, but could surprise with quicker disinflation leading to a over 100 bps rate cuts; higher capital flows boosting investments and capital availability; sustained commodity price drops favouring CAD, fiscal and inflation; and a possible ratings upgrade which though not entirely in her hands, could well be in store."
She said more upsides in 2015 is likely not only due to the on-going process of macro stabilisation but also the Modi Government's thrust on relaxing the land and labour laws and easing capital and enterprise controls.
"Consequently, while our macro forecasts are unchanged, but if all goes well there is room to surprise: GDP could rise from 5.6 percent in FY15 to 7 percent in FY17; inflation tracking RBI's target of 6 percent and rates lower by 100 bps; CAD under control within 1.5 percent of GDP through FY17 and fiscal consolidation through revenue and expenditure reforms," Malkani said.
However, she also listed some "nasty surprises" that the country may face in the form of political risks, as the Government does not have a majority in the Upper House (where key laws may get stuck), bank recapitalisation and asset quality, geo-political risks and market turbulences due to US Fed hiking rates.
The report said the ease of doing business needs to improve in India.

Latest News  from Business News Desk