Upbeat data from India today kindled hopes that Asia’s third-largest economy has emerged from the global sub-prime storm and is heading for a rapid recovery.

Tata Motors, the Mumbai-based owner of Jaguar and Land Rover, unveiled a smaller than expected 51 per cent fall in full-year profits, benefiting from a pick-up in sales of trucks in its home market in its final quarter and falling raw material costs.

Official figures for the Indian economy also beat forecasts, suggesting that domestic demand has weathered the credit crunch better than analysts had expected.

The economy grew by 5.8 per cent in the final three months of the fiscal year, as heavy government spending offset a continuing slump in manufacturing. The reading was far better than the 5 per cent expected by economists.

Rajeev Malik, an economist with Macquarie, said: “I think the GDP upgrade cycle has just started. We are past the eye of the storm."

Equities benefitted from the GDP numbers, with India’s benchmark Sensex index gaining 2.3 per cent to close at a near nine-month high.

In April, the index gained more than 17 per cent to register its best monthly performance in 10 years amid strong buying by foreign investors. It gained another 17 per cent in a single session on May 18 after the ruling government coalition emerged as strong winners from India's general election, averting fears of a hung parliament.

The buoyant mood on the bourses will provide ammunition to those analysts who stuck to their guns as Mumbai's stock markets plummeted last year, to insist that India and other large emerging economies had “decoupled” from the West.

The economist, Jim O’Neill of Goldman Sachs, who championed the decoupling idea has argued that the current global slowdown will only accelerate the relative advance of Brazil, Russia, India and China. He originally predicted that the “BRIC” economies would together be larger in dollar terms than the G7 by 2035. He now believes the shift could happen much faster—by 2027.

Stock markets across Asia rose yesterday, lifted by strong manufacturing figures fom Japan.

India’s economy grew just a shade more slowly than that of China, for years the engine of global growth, which expanded at 6.1 per cent in the same period.

The Indian figures, which also benefited from good harvests for farmers, show that India’s economy grew at 6.7 per cent for the year to March, the slowest growth recorded in six years and down from 9 per cent last year, but far better than many had feared.

Tushar Poddar, a Goldman Sachs economist, said: “We expect activity to pick up in the second half of [this year]. Recent indicators of investment activity — the PMI, cement sales, and the capital goods component of the Industrial Production Index — are showing sequential improvement.”

Tata Motors, which controls about 60 per cent of the Indian truck market, said that net profits fell to 10.01 billion rupees ($212 million) in the year to the end of March. Analysts had expected a collapse in profits, to only 2.7 billion rupees.

Revenue fell by 0.7 per cent to 256.6 billion rupees, again beating expectations.

It was the second piece of good news for Tata Motors this week. On Wednesday, the company announced that it had rolled over until December 2010 a $1billion (£618 million) loan taken out to acquire Jaguar Land Rover, averting the prospect of default.

The debt was part of a £3 billion bridge loan used to acquire the British luxury marques for $2.3 billion last year. Of that sum, $1.16 billion had already been repaid and last week Tata raised another $840 million through secured non-convertible local currency debentures.

Analysts believe that the new loan is priced at 500 basis points over the London Interbank Offered Rate (Libor). The previous $3 billion loan was priced at 175 basis points over Libor. Shares in Tata Motors have more than doubled since March on investors' expectations of successful refinancing of the remaining near-$2 billion loan before the June 2 deadline.

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