We are increasing our fair value estimate for Axis Bank by 35% to INR 531 per share, or USD 43 per GDR, as we reduce our cost of equity to 12% from 14%. Our fair value estimate represents 2.5 times 2016 book value per share and 14 times our fiscal 2016 diluted earnings estimate of INR 37.54 per share. The lower cost of equity assumption is in line with a global change to Morningstar's cost of capital methodology as it takes into account a lower required investment return for the U.S. market of 9%, plus a 3% country premium for an Indian company with average systematic risk. Given that the growth and earnings potential of all Indian banks is closely linked to the Indian economy, we now assume a uniform 12% cost of equity across all our banks. We continue to evaluate them separately in awarding fair value uncertainty ratings, which lie in the high to very high range, given the high operating leverage and financial leverage with which banks operate in comparison with nonbanks. We continue to believe Axis deserves a high uncertainty rating.
Despite the change in our fair value estimate, our financial forecasts and outlook are unchanged. Our average earnings growth forecast remains at 18.6%, driven by 18% growth in interest income and 20% annual growth in noninterest income over the next five years. We hold our net interest margin outlook stable at 3.5% over our explicit forecast. Our narrow economic moat rating on the bank, hinged on cost advantages, also is unchanged.
We believe Axis Bank will comfortably exceed its estimated 12% COE while maintaining adequate equity coverage, justifying our narrow economic moat rating. We believe the bank is a standard steward of shareholder capital with a reasonably good execution record on its stated India retail strategy.
Overall, we maintain a positive outlook on the bank even though the shares trade modestly above our intrinsic value.
