Is India gearing up for another few quarters of slow growth? As per the latest report by Nomura, the growth landscape still looks mixed. The latest report as per the Nomura India Growth Thermometer (NIGHT) suggests only a tepid improvement in the GDP momentum and as a result, FY26 is expected to be below 6%.
What are the key headwinds for India?
Nomura highlighted that they are forecasting India’s “GDP growth to be 6% YoY in FY25 and 5.9% in FY26.” This would be significantly lower than the RBI estimates at the recently concluded MPC meeting on February 7. According to the latest RBI estimates, FY26 growth is estimated at 6.7%. However, Nomura believes there are multiple growth headwinds. “The fading of pent-up urban demand, tight monetary policy, household balance sheet stress , slowing nominal income growth and a negative credit impulse,” are some of the key concerns as per Nomura.
Sectoral Outlook – What are economic indicators suggesting?
The January trends indicate that key indicators of consumption like passenger vehicle and two-wheeler sales remained weak. According to Nomura, “improvement in private consumption growth and stable fixed investment growth, in part reflecting a late push on public capex, and a recovery in government spending,” are crucial for sustained GDP improvement. However, increased imports will likely result in a negative contribution from net exports.
According to Nomura, “expect a limited recovery in the industrial sector, reflecting cautious corporate results in the quarter and a tepid pickup in industrial production growth. On the services side, we see stable growth in construction and financial services, real estate and professional services.” Underwhelming trends in the “trade, hotels, transportation and communication” sector are the big worries.
Expect 75 bps rate cut by RBI
Given the ongoing cyclical growth slowdown, “we continue to expect 75bp of additional cuts, more than consensus (25-50bp more), to a terminal rate of 5.50% by end2025, with the next cut in April.” The RBI had cut repo rates for the first time in nearly 5 years earlier this month. The next Policy meeting is scheduled in April and consensus for another round of rate cut is gradually building.