Government is expected to revive projects worth USD 60 billion, around 45 per cent of all the stalled projects, a move that could lead to a sustainable improvement in GDP and market rally, says a Societe Generale report.
In its optimistic scenario, a much higher rate of stalled project revival and faster than expected reform implementation, India's GDP growth rate could potentially reach 8.5-9 per cent in five years and the Sensex could potentially reach 45,000 by December 2016.
According to the global financial services major, concerns around the stalled projects have already peaked, indicating that the worst may be over.
"Our base case scenario is that the government will be able to revive projects worth USD 60 billion," the report said, adding that "this should lead to a sustainable improvement in GDP growth and corporate earnings and to a structural rally in the Sensex".
On the other hand, in a pessimistic scenario the GDP growth rate could stay close to current levels (around 5-5.5 per cent) over the next five years and the Sensex could potentially fall to 20,000 by December 2016.
The report further noted that if the government is able to revive the long-term investment cycle, the current bull run in Indian markets may well outlive the term of the current government in office (beyond 2019), and we can expect much higher GDP growth rates and Sensex targets.
The report noted that the biggest concern for India is also its biggest opportunity.
"We note that the biggest concern is about stalled projects which we identify as the biggest opportunity for the government to immediately kick start the investment cycle," the report said.
An analysis of all the projects announced since 2000 across India, where implementation has been stalled for various reasons shows that the total value of these projects stood at a staggering USD 134 billion, about 7 per cent of GDP.