Buoyed by a stable government coming to power, which is expected to bring in much awaited reforms, DBS Bank on Wednesday revised upwards its gross domestic products (GDP) growth estimate for financial year 2015-16 to 6.5 per cent.
The lender expects the country's economy to expand by 5.5 per cent in the current fiscal year (2014-15).
"Banking on the decisive win of the new government and the likelihood that tough but necessary policy initiatives will be undertaken to shore growth, we revise up FY'16 GDP estimate to 6.5 per cent from 6.1 per cent earlier," the bank said in Mumbai on Wednesday.
According to the bank, the impact of the groundwork on investment climate and delivery of the reform agenda undertaken this year will reflect with a lag into FY16.
"The initial impact is likely to feed through sentiments and asset market gains, primarily stock markets. The latter will provide an avenue for corporates and banks to raise capital to expand operations or capex creation," it said.
DBS expects output in industrial sector to rise to 3.4 per cent in the current fiscal year and beyond 5 per cent in next fiscal year, from sub-1 per cent in the previous two fiscal years.
The bank, however, sees the likelihood of a weak southwest monsoon as an important risk for growth this year.
Earlier this week, Indian Meteorological Department (IMD) in its second estimate has lowered its monsoon forecast. It now expects rainfall to be 7 per cent below normal as against an earlier estimate of 5 per cent below normal. The department also sees a 70 per cent chance of the El Nino development.
The bank said that if the severity of the rainfall deficit widens further into the September 2014 quarter, there will be negative implications for growth and inflation outlook.
"Poor monsoon rains will keep growth close to 5 per cent in FY15."