“The Central Bank’s measures are expected to slow down economic growth marginally in 2008, with real GDP growth projected at about 8.1-8.6 per cent, as against 8.5-9 per cent in 2007,” S&P said in its 2008 Asia-Pacific Markets Outlook report.

However, a strong domestic demand is expected to keep the economy on a relatively high growth trajectory, it said.

“The moderation to 8.1-8.6 per cent this year reflects a soft landing, taking the Indian economy closer to its current trend growth rate, estimated at 8.5 per cent,” S&P Chief Economist Asia Pacific Subir Gokarn said. While India remains relatively immune to US credit woes, the oil prices, if remain at these levels for any sustained period of time, may impact the ability of Indian economy to grow under its own steam.

On the equity market, S&P gave a neutral outlook and said the market was at a comfortable point with corporate earnings growth to support further upside in 2008.

“We are largely neutral on Indian equity markets as additional foreign inflows may be muted owing to recent government moves to limit foreign fund inflows via offshore derivatives,” S&P Head Asia Pacific Equity Research Lorraine Tan said.  Ms Tan said that the market was at a comfortable point and corporate earnings could result in an upside of 10-15 per cent for the Indian equity markets in 2008.

On risks facing Indian economy, Mr Gokarn said apart from oil prices, it was the pace of infrastructure growth which has not been able to close the gap between demand and supply.

Credit outlook
Though politis is likely to continue to weigh on credit rating of soverigns in Indian sub-continent, India’s outlook is stable.

The overall corporate credit outlook is stable but the negative bias remains with entities pursuing rapid inorganic growth with levereged buy-outs and debt-supported expansion. For overall Asia Pacific market, S&P said the economic outlook for the region in 2008 is relatively robust but debt and equity markets could face increasing pressure in the year ahead.