Outlook weak for India economic growth: analysts

September 3, 2013

India’s economy grew at 4.4 percent in the June quarter, its slowest rate since the first three months of 2009 and weaker than analysts’ consensus of 4.7 percent in a Reuters poll.

With the rupee still trading near record lows and a ballooning current account deficit alarming investors and policymakers, several investment banks are worried about the road ahead.

Here are some comments on India’s economic growth released by investment banks after the recent GDP data:

JP Morgan: The investment bank said the next quarter could be worse. JP Morgan now expects India’s FY14 GDP to grow at 4.1 percent.

“Growth will likely get a boost from a strong monsoon and an expansive food security bill later this year. But the stagflationary shock from the rupee depreciation over the last three months and high interest rates are expected to be a key drag on growth and stress on unhedged corporate balance sheets,” analysts wrote.

Goldman Sachs: The investment bank downgraded India’s GDP forecast to 4 percent from 6 percent for the current financial year and to 5.4 percent from 6.8 percent for the financial year ending in March 2015.

“We think that there could be some risks of near-term overshooting of our targets if economic and financing conditions worsen, and especially if there are pressures on the banking and corporate sectors due to weakness in growth,” it said.

Scotiabank: There is an increasing possibility that India’s GDP growth in the current financial year may not reach its forecast of 5 percent, Scotiabank said. “India’s economic performance is challenged by a high cost of financing, a difficult business environment, and still-weak global demand conditions,” it said in a note.

HSBC: The investment bank slashed India’s GDP growth forecasts to 4 percent from 5.5 percent for the current financial year. HSBC said they do not expect to see signs of recovery until the fourth quarter of the current financial year.

“This is not the bottom. High-frequency indicators, such as HSBC’s PMI indices and business sentiment indicators, suggest that the growth momentum eased further during the July-September quarter in both the manufacturing and services sectors. Why? For one, the reform announcements have yet to translate into action on the ground. Moreover, the RBI’s currency stabilization measures have raised funding costs. Finally, heightened macroeconomic uncertainty is making,” it said in the note.

DBS: In a research note, DBS said: “Looking ahead, signs are of a correction in the economy’s trend growth. Apart from government spending, there is little reason to be optimistic of a recovery in the other domestic demand components, despite the food security bill and infrastructure projects.”

The investment bank said that there is a probability that economic growth could slip below 5 percent this year, adding that a slip below 4 percent could also be on the cards as a worst case scenario.

Nomura: The investment back last week cut its outlook for Indian economic growth for the second time since the start of July. After cutting India’s GDP forecast for FY14 to 5 percent from 5.6 percent on July 19, economists at Nomura have now hacked their GDP growth estimates down to 4.2 percent. The bank reinforced its negative view on India’s macroeconomic outlook for the next three to six months.

“With fiscal pressures building, the government will likely be unable to continue its current pace of spending without risking substantial fiscal slippage, implying spending will have to be sliced in the second half of FY14”.

(Yati Himatsingka from Bangalore contributed to this post. You can follow Aditya on Twitter @adityayk and Yati @ReutersYati)

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