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Goldman Sachs, Deutsche Bank, HSBC lower India’s GDP forecast for FY20

Many brokerage firms expect the slowdown effect to be visible for some more quarters ahead.

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Updated:June 3, 2019, 2:40 PM IST
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Goldman Sachs, Deutsche Bank, HSBC lower India’s GDP forecast for FY20
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After government data on Friday showed that India’s gross domestic product (GDP) grew at a lower-than-expected 5.8% for the March quarter, several global brokerage firms like Deutsche Bank, Nomura, HSBC and Goldman Sachs have lowered their growth estimates for 2019-20 as well. Many brokerage firms expect the slowdown effect to be visible for some more quarters ahead. The firms also see the Reserve Bank of India’s (RBI’s) monetary policy committee slashing rates by at least 25 basis points in its next meeting on 6 June.

Deutsche Bank revised down FY20 full-year GDP growth forecast to 7% from 7.4% earlier. The global investment bank expects a negative base effect to keep GDP growth at 6-6.2% in the first half of 2019-20. However, it forecasts the growth momentum to improve to above 7.5% in the second half of the year.

Deutsche Bank said that given the fact that India’s growth rate fell below 6% in the March quarter, RBI is now likely to cut repo by 25 bps and CRR (cash reserve ratio) by 50 bps.

Nomura expects the slowdown to continue till the June quarter of the current fiscal year. The global brokerage firm expects a slow recovery to start from the September quarter of 2019-20, risking the FY20 forecast of 6.8%.

“The Q4FY19 GDP growth was below market expectations. The slowdown reflects a combination of global weakness and continued domestic drags. High-frequency data suggest the slowdown continues into Q1FY20 (June quarter),” Nomura said in a report.

Also, Nomura expects RBI to reduce repo rate by 25 basis points to 5.75% at the 6 June policy meeting. RBI may continue to hold ‘neutral’ stance, but Nomura expects the central bank to state that it will keep banking system liquidity marginally positive.

HSBC also said that India’s economic growth is likely to remain weak in the quarter ended June 2019 as well, but should start improving from the second half of FY20. “We expect growth to pick up again to 7% ballpark in H2FY19,” said HSBC. It added that RBI is expected to cut rates by 25 bps at the upcoming June meeting, while maintaining liquidity at a slight surplus.

Goldman Sachs said it expects to see a pick-up in the Indian economy from the second half of the calendar year. Lower oil prices, improved sentiment and progress on reforms are key factors likely to support growth. However, Goldman Sachs warned that NBFC (non-banking finance companies) concerns, if persist for longer, could pose a downside risk.

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