Nomura: India to soon enter third and final wave of a bear market

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Published: January 26, 2019 12:37:16 AM

It is possible that, in coming years, some of the larger and historically, more high-inflation prone EM economies – China, India, Indonesia and Brazil – could experience CPI deflation, which could be driven by the digital tech wave.

Sonal Verma, chief India economist at Nomura, explains that the economic fallout from the shadow banking crisis will be most acute in Q1, and uncertainty in the lead-up to the April/May elections could delay private investment at a time when the scope for fiscal stimulus is severely limited.

After a roller-coaster ride of the Indian markets in 2018, which was predominantly powered by a handful of stocks, Nomura expects India and Asia markets in the second half of CY2019 to enter the third and final wave of a bear market. An economic recovery in H2 2019 will be Emerging Asia’s time to shine, said Nomura in a report.
“We expect recovery in H2 2019 if the Fed pauses after its March 2019 hike and game-changing China policy stimulus in Q2 and if oil prices could stay low,” said Robert Subbaraman, head of global markets research at Nomura. Relative to consensus forecasts, Nomura expects much weaker growth in H1, lower inflation and a policy rate cut in Q3. Additionally, it is more downbeat on China, India and Malaysia.

Sonal Verma, chief India economist at Nomura, explains that the economic fallout from the shadow banking crisis will be most acute in Q1, and uncertainty in the lead-up to the April/May elections could delay private investment at a time when the scope for fiscal stimulus is severely limited.

For the elections in India in Q2 2019, Nomura expects Modi to win a second term. It is possible that, in coming years, some of the larger and historically, more high-inflation prone EM economies – China, India, Indonesia and Brazil – could experience CPI deflation, which could be driven by the digital tech wave.

With regard to policy rate, it foresees a interest rate cuts by RBI in Q3. Nomura’s analysis of the factors driving growth suggests that cyclical sectors are most at risk of a significant demand slowdown in coming quarters.
“A pullback in lending by NBFCs is likely to hurt consumer discretionary demand and real estate investment,” said Saion Mukherjee, head of equity research at Nomura.

The Central government revenues are under strain from lower-than-budgeted GST collections, lower direct tax receipts and a potential shortfall in disinvestment proceeds. “We estimate that overall revenue collections will undershoot budgeted targets by 0.5% of GDP. With the Central government’s fiscal deficit already at 103.9% of the full-year target in the first seven months (April-October), we believe meeting the budgeted fiscal deficit target (of 3.3% of GDP in FY19), to which the government has reiterated its commitment, will entail a significant contraction of spending in the remaining months of FY19,” said Aurodeep Nandi, India economist at Nomura.

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