...But Nomura says optimism misplaced; moderates FY24 GDP growth to 5.2%

MUMBAI: Japanese brokerage Nomura has projected a sharp moderation in India’s growth rate for FY24 to 5.2 per cent as compared to FY23, saying Indian policymakers are misplaced about their optimism on the country’s growth prospects.

After a week-long meetings with policymakers, corporates, commercial banks and political experts, its economists said its FY23 GDP growth estimate is at 7 per cent at par with the RBI’s revised down forecast but it expects a “sharp moderation” to 5.2 per cent in FY24.

While we broadly agree with our interlocutors on the growth prospects in FY23, we believe the optimism in FY24 may be misplaced and that the spillover effects from the global slowdown are being underestimated, its economists Sonal Verma and Aurodeep Nandi said in a note.

The RBI has hiked repo rate by 190 basis points since May to tame inflation and is expected to do more, especially amid faster rate tightening by the US Fed, which is bound to impact growth. The economy grew at 4 per cent in FY20 in a multi-year low. The estimated slowdown in growth in FY24 will come ahead of the next general elections.

Indian policymakers have frequently spoken about the need to have a sustained growth of over 7 per cent for achieving long-term economic ambitions.

The brokerage said the mood in the country is relatively positive with risks seen emanating from weaker global demand, and added that domestic recovery is getting broad-based as seen through pick-up in investments and higher credit growth.

It recommended policy vigilance amid the global headwinds, and underlined that macro stability should be the priority over growth.

The brokerage said it expects the RBI to go for a 35 basis points hike at the December meeting and deliver a 25 basis points increase in February to take the repo rate to 6.50 per cent.

It expects inflation to average at 6.8 per cent in FY23, a tad above the RBI’s 6.7 per cent estimate, and cool down to 5.3 per cent in FY24. On the fiscal consolidation front, it said expenditure cuts would be necessary to meet the 6.4 per cent fiscal deficit target for FY23 and added that it is circumspect about a sub-6 per cent target for FY24.

The brokerage said it expects the current account deficit to widen, with a weaker currency to follow. It said market participants believe there is no “line-in-the-sand” for either forex reserves which stood at over $530 billion, or the level of the rupee.