India may become second largest emerging market after China: Report

India is offering relative value in a slow growth world and it's faster growth is allowing the country to emerge as the second largest emerging market after China, noted a recent report by Bank of America Merill Lynch.

"India is a rare economy in today's world in that it is not in stagflation. It is poised to overtake Brazil this year after having overtaken Russia last year in nominal GDP terms to emerge as the second largest emerging market after China," the report added.

The country is expected to register a GDP growth of 7.4 per cent this fiscal, according to the global brokerage firm.

"India still offers relative value in a slow-growth world. In our view we see a shallow recovery at home, we estimate growth at 5.5 per cent in FY16 and 6.5 per cent in FY17 (old GDP series)," BofA-ML said in a research note today.

According to the old series, the base year for calculation of national accounts was 2004-05.

The Central Statistics Office has now adopted the new series of National Accounts with 2011-12 as base year and subsequently revised the Gross Domestic Product (GDP) growth rate to 6.9 per cent in 2013-14 from 4.7 per cent and 5.1 per cent in 2012-13 from 4.5 per cent.

The report noted that India's slow recovery was largely because of delayed global revival and lending rate cuts. It expects a turnaround in GDP numbers next fiscal assuming better rains and lending rate cuts.

The report also noted that lending rate cuts hold the key to cyclical recovery and reforms remain important but more from a medium 5-10 year perspective.

On the Reserve Bank's policy stance, BofA-ML said that the RBI is likely to cut another 25 bps in February after it meets its under-6 per cent January 2016 inflation mandate.

RBI Governor Raghuram Rajan on September 29 effected a more-than-expected interest rate cut of half a per cent to boost the economy.

(Image credit: Economic Times)