Mumbai:The markets outlook for India this year is contingent on consumption demands, corporate earnings and inflation trends, American ratings agency Moody’s said on Monday.

“India enters 2016 on the cusp of a cyclical growth recovery, with inflation under control and the economy benefiting from lower commodity prices,” Moody’s associate managing director Atsi Sheth said in a note.

“Market trends will depend on whether inflation remains under control and corporate profits revive,” she said.

Citing a projection of a boost in demand post-implementation of the recommended pay revision for central government employees and pensioners, and a potential upturn in agriculture, Moody’s said a broad-based pick-up in investment will only unfold with a timelag.

“We believe that these advantages will only yield sustainable growth acceleration once corporate and bank balance sheets are repaired, and if the private sector remains internationally competitive,” Sheth said.

She said inflation and corporate profit trends will offer clues as to whether these efforts have created conditions for growth that are sustainable over the next 3-4 years.

Sheth’s report also said low inflation may indicate a greater balance between domestic demand and supply conditions, and would help private sector remain globally competitive.

Consumer price-indexed (CPI) — or retail — inflation rose in October to 5 percent, which was a four-month high. Inflation, in September, was at 4.41 percent.

Though wholesale inflation has been in the negative for the last 13 months, the rate has been rising for three months in succession and was minus 1.99 percent in November.

The government’s total outlay for paying salaries to its staff will rise by Rs.102,000 crore, which, if the Seventh Pay Commission recommendations are accepted in totality, will put pressure on its fiscal deficit control efforts.

Rabi crop output has been lower than expected, while prices of pulses have been rising, which are bound to put pressure on food inflation.

The Reserve Bank of India recently lowered its growth forecast for the country’s current fiscal to 7.4 percent, from the 7.6 percent it had projected earlier.

The CPI inflation has moderated to 5 percent in October 2015 compared to 5.4 percent in February 2015. Similarly, the WPI has been in the negative territory since November 2014 and was pegged in October 2015 at minus 3.8 percent.