The brokerage also pegged 2013-14 growth at 6.9 per cent and at 7.5 per cent for FY\'15. It also has one of the highest GDP forecasts for the current fiscal at 5.7 per cent.
"We expect GDP growth to surprise on the upside and inflation on the downside in 2013. The latter should in turn prompt the RBI to cut policy rates more than generally anticipated, while even the twin deficits could narrow somewhat. India is entering a cyclical sweet spot and the FY14 budget is going to be tighter than generally anticipated," Credit Suisse research analyst Robert Prior-Wandesforde said in a note.
If at all the RBI goes for more-than-expected rate cuts through 2013, it does not see growth clipping beyond 7.5 per cent in FY\'14, he added.
The brokerage said headline inflation readings will fall significantly to 6 per cent while core inflation will fall steeply to under 4 per cent by mid-2013.
The optimism is based primarily on the recent 4 point improvement in the manufacturing PMI (Purchasing Managers Index) and a marginal rise in the services PMI in November.
"It seems that the fundamentals are beginning to become more helpful. In our view, the economy has yet to feel the full benefits of the rupee\'s sizable depreciation, while the drop in market interest rates, the prospect of further policy rate cuts and the likely confidence-boosting effects of the reforms," he said,
Prior-Wandesforde sounded less optimistic on China saying those expecting a strong, sustained recovery of the Chinese economy are likely to be disappointed as new regulations on shadow banking, the trust sector and local government funding will constrain public sector investment.
Even the private sector is likely to continue to struggle.
However, the report adds that "it is not expecting a "v-shaped" recovery to materialise, but our fiscal year average forecasts of 5.7 per cent in FY\'13, 6.9 per cent in FY\'14 and 7.5 per cent in FY\'15 are all above consensus."
On inflation front, he said their modelling suggests the stickiness of wholesale price inflation through much of 2012 can be largely explained by the persistence of relatively high fuel and food prices. This the brokerage feels will have important "second-round" effects on the core rate, as well as robust monetary growth.
"The good news on inflation is that most of these drivers are now waning, while the lagged effects of sub-trend growth and weaker rupee denominated commodity price inflation are continuing to feed through," he said.
"Looking ahead, our analysis suggests the core rate will drop below 4 per cent by mid-2013, with the headline rate slipping to less than 6 per cent. This in turn helps to explain our sub-consensus headline wholesale price inflation forecasts of 7.3 per cent and 6 per cent in FY13 and FY14 respectively," Prior-Wandesforde said.
On policy easing by the apex bank, Prior-Wandesforde said RBI\'s post-policy review statements of October 30 and December 18 signal a change in its hawkish tune, which in turn has reignited the debate concerning the likely scale of policy rate reductions to come.
Stating that it view has been and remains the most dovish of all, the report said, "we are looking for a total of 125 bps of repo rate cuts this year, with 50 bps on January 29, a further 50 bps in April and a final 25 bps in July."
On the possibility of the rating agencies downgrading the country\'s rating to junk or sub-investment grade this year, the brokerage said "if our assumptions are reasonably accurate, the chances of two of the three main rating agencies junking India by end-2013 is small, with the likelihood being just about 15-20 per cent.
It also said that Fitch appears to be close to pulling the trigger but it seems is waiting for the Budget before deciding whether to do so.