A slowing economy has not stopped India’s benchmark equity index from climbing to a series of records this year, but this divergence may have run its course, according to BNP Paribas.

Asia’s third-biggest economy probably grew 4.6 per cent last quarter, which would be the slowest since the first three months of 2013.

“Meanwhile, the Sensex closed at a new high Wednesday and is up nearly 14 per cent for 2019. Stocks have climbed mainly since late September, when the unveiling of a corporate tax cut boosted the outlook for corporate earnings,” Abhiram Eleswarapu, the firms Mumbai-based head of equity research, wrote in a note.

“Our recent meetings with policy makers and industry experts confirmed that there is unlikely to be a significant uptick in economic data in the near term. The index rally we had cautiously called for may be done for now,” he added.

This view echoes that of Credit Suisse, which expects the growth slump to last longer than anticipated based on its interaction with investors. With growth continuing to fall in October-November, it seems unlikely that FY20 would see any growth in EPS and FY21 should see meaningful cuts too, it said in a report this week.

Investors are, however, unfazed by the economic slowdown. Net foreign buying in Indian stocks has reached $3.2 billion so far this month, set for the biggest tally since March, according to official data. The recent equity gains have also been fueled in part by hopes for a trade deal between the United States (US) and China.

The Government may soon have to make the difficult choice between considerably slipping on its fiscal deficit target of 3.3 per cent of GDP in FY20 to boost growth or potentially prolonging the slowdown by halting expenditure, BNP said.

The brokerage remains overweight on India, and favours private banks, insurers and dividend-paying public sector firms.

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