Bleak outlook: Brokerages cut India's GDP growth forecast

The June quarter GDP numbers indicate that India's growth has hit a wall.

India's GDP growth fell to over 6-year low, coming at 5 percent in April-June 2019.

Gross value added (GVA), which is GDP minus taxes, and, therefore, a more realistic proxy to measure economic activity, grew 4.9 percent in April-June 2019, compared to 7.7 percent in the same period last year and 5.7 percent in January-March this year.

Economists and market observers attribute the slowdown to domestic as well as global factors.

While the trade war is the top global factor that caused a slowdown in major economies of the world, back home, reforms such as demonetisation and GST weighed on consumption which led to less income and a further slump in demand.

The poor health of banks and NBFCs, disappointing quarterly earnings of the corporates and an almost stagnant agri sector made the situation worse.

The weak GDP number has prodded brokerages to take a relook at their outlook on growth and most of them have revised their projections downwards. Besides, they expect further easing in rates by the Reserve Bank of India (RBI).

Deutsche Bank

Deutsche Bank has revised FY20 full-year GDP estimate to 6.3 percent from 7 percent. The brokerage expects the RBI to cut repo rate by 25 bps in October policy meet against the earlier expectation of 15 bps.

"We see terminal repo rate falling to 4.75 percent against our earlier forecast of 5 percent," Deutsche Bank said.

HSBC

HSBC is hopeful that growth will revive. "Growth is likely to revive in the second half of FY20 due to low base and some sequential uptick," said HSBC, adding that it expects RBI to cut rates by 50 bps over Q4 and Q1FY21, taking repo rate to 4.9 percent.

Nomura

Japan's Nomura has lowered 2019 GDP growth projection to 5.7 percent year-on-year (YoY) against 6.2 percent earlier. For FY20, it cut the GDP growth forecast to 6 percent against 6.5 percent. Nomura, too, expects the RBI to deliver a cumulative additional easing of 40 bps.

Phillip Capital

The global brokerage has also cut FY20 GDP growth estimate to 6 percent; however, it kept FY21 GDP estimate at 6.2-6.7 percent. "In case of no recovery in the second half of FY 0, GDP will likely fall in the range of 5.5-6 percent," Phillip Capital said.

The brokerage sees the global slowdown as an added risk to earnings growth of 15-25 percent for FY20-21 and added that there is a reasonable room for downward revision of the projection.

JP Morgan

"Private consumption fell sharply for both cyclical and structural reasons while export and import growth also declined. "We expect 25 bps cut in October monetary policy review," JP Morgan said.

Motilal Oswal Financial Services

The domestic brokerage has revised real GVA and GDP forecast for FY20 from 6.3-6.5 percent earlier to 5.9-6.1 percent.

"Another rate cut by the RBI (probably by 40 bps) is very likely," the brokerage added.

Kotak Institutional Equities

The brokerage has revised the FY2020 GDP growth estimate downwards by 50 bps to 5.8 percent and expects RBI's MPC to cut rates by up to 75 bps through the rest of FY20.

"A cut of around 40 bps is likely in October MPC meeting itself," said the brokerage.

Concerns over the health of the economy are mounting at this juncture and the expectations of fresh fiscal, monetary and regulatory measures to boost the economy have grown stronger.

"Key reasons for weak GDP number are a decline in manufacturing, rural distress, liquidity tightening, and consumption slowdown. We expect the fiscal, monetary and regulatory measures announced recently to improve the situation," said S Ranganathan, Head of Research at LKP Securities.

Analysts think it will take one-two quarters for the economy to come back on the track.

“An overall recovery may take another couple of quarters as the NBFC sector is still recovering from the liquidity crisis,” said Gourav Kumar, Principal Research Analyst at FundsIndia.com.